Vacant land purchases and upmarket gated estates among the hardest hit by the recession

With advice on investing in residential property now flowing freely to the media and to the public from a wide range of estate agents and developers, it may seem that almost any property investment is likely to be a good one in the long term. However this is not always the case, says Bill Rawson, Chairman of the Rawson Property Group.

“One has to accept that every property purchase does carry some risk,” said Rawson. “Recently we have seen a big off-loading at hugely reduced prices in one particular category – vacant land.”

Many investors, said Rawson, put money into land when the market was rising in the expectation that they would either sell it later at a profit to a developer, an owner-builder or would be able to raise the finance to develop it themselves. When, however, the recession hit, they quite frequently found that none of the options were open to them any longer. Vacant land, until very recently, had to be sold at even bigger discounts than repossessed property and development finance for new property has been especially hard to come by unless a high level of pre-sales is achieved – and even then it can present difficulties.

If, on the other hand, said Rawson, the buyer has the resources to go ahead with a small project, preferably one in a low cost area, as soon as he takes transfer, this can definitely be profitable in today’s market. The primary condition here, he added, is that the new home must be in an already developed area where demand for housing is strong.

“We have recently seen many people cashing in on this market,” said Rawson, “and while the new home may be more expensive than a second-hand home, on a square metre basis, there will, it seems, always be buyers prepared to accept this for the sake of having something brand new, where they are the first occupants.”

Particularly hard hit, said Rawson, have been those investors who, in the boom years, basing their budgeting on a steadily increasing income, bought in gated security estates and retirement developments – only to find that they did not have the cash to go ahead with the building of their unit. Such purchases, he said, were often made on the condition that building began within a specified time, e.g. from one to three years. When the purchaser found that he could not afford to do this, he would have to pay a penalty in most cases, which could be as high as R4,000 or R5,000 per month on a plot costing only R400,000 to R600,000. Even offering to transfer the erf back to the developers at no cost is, in these situations, often not acceptable, said Rawson.

“This sort of very difficult situation has led to real hardship for many,” he said, “but again it seems that those investing at the lower end of the market have been less hard hit than those who invested in the expensive luxury golf and other estates, for which the demand has been greatly reduced recently.”

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