How to evaluate your own property

2010-11-20 08:57

Buying a property in Illovo or Killarney
Illovo and Killarney share similar characteristics. The properties in these areas are generally older properties, mostly developed in the 60s and 70s as sectional-title units or blocks of flats where sectional title registers were opened to convert them into separate units.

These older properties have a certain character about them, and are enormous compared to the building trends of later years, where space and cost have become much more of a constraint.

Many of these units do not have attached ­parking bays on the title deed of the units, but ample space is available in most complexes’ communal areas. In this case, the body corporate of the ­complex would either allocate a specific space or work on a first-come, first-served basis.

Special care needs to be taken when looking at units without parking bays as this may significantly affect the value and marketability of the property.

Even a very good unit may sell for much less than it is worth simply because there is limited parking space available.

As yet, reliable and comprehensive public ­transport is not a reality, and private vehicles are essential for many Joburg residents.

Killarney is slightly older. The units are on ­average slightly bigger, but offer similar ­accommodation.

Access to highways and traffic is also slightly ­better with Killarney close to highways, while Illovo is connected with the busy Corlett and Oxford roads.

Traffic noises and nightlife in Illovo might be a bit more prevalent, but it still offers a great ­location and great accommodation.

Throughout the recession, both areas have kept their values rather well, and transaction volumes (churn) are still at acceptable levels.

Illovo seems to have grown less in value than Killarney, but both have done exceptionally well compared to national averages of newer sectional title-driven areas.

Troyeville – sell or rent?

According to FNB’s 3rd Quarter Estate Agent Survey, rental properties are achieving gross rental rates of 7.8%.

Property in Troyeville is currently returning a gross rental of more than 21%. This is a very high return compared to averages.

Good tenant management is always a requirement, though, and according to TPN Credit Bureau, about 20% of tenants on its records are not in good standing with their landlords.

If tenant risks are managed correctly, however, it will be very difficult to find an investment with this rate of return.
It would make sense for Gail to hold on to this property.

Property to sell in Yeoville

On closer inspection, this property was proved to be registered in Lorentzville and not in Yeoville.

It is common that the known name of an area differs from the legal description of the property.

In Lorentzville, similar rental could be achieved as for the Troyeville property, but as always, the risks of problematic tenants needs to be considered and managed. Due to the shortage of properties priced in this range, these sectional title properties have ­relatively high demand levels compared to more expensive areas.

Developers are struggling to build units at the cost of what these existing units can be bought for. Therefore, they are in short supply and would be easier to sell.

However, Gail needs to keep in mind that she needs to price the property correctly to try and sell the property within a reasonable time.

Average time on the market nationally is ­currently more than 3 months, but should be less for this area considering that it attracts higher ­demand.

Property to keep in Fleurhof

Gail would like to keep this property as it has sentimental value. The bulk of Fleurhof’s properties were developed in the 80s. These properties are much newer than Killarney and Illovo and therefore smaller property sizes on average.

No indication was given of the value of this property, but it is estimated to be worth between R600?000 and R650?000, which means Gail is receiving a yield (rental income) of about 7.5%.

Although current rental returns on residential properties are weak, so are returns from other asset classes with low interest rates.

This property provides both income and capital growth.

Save on transfer costs

FNB Home Loans’ “Move Home not your Home Loan” offering pays for the attorney bond registration costs. For example, you will save R14?000 on a R1.4 million bond.

If Gail sells the Yeoville property (simultaneously or prior to the registration of the new property) and she has one mortgage bond registered in the deeds office at the date of sale, FNB Home Loans will subsidise the attorney bond cancellation fee and pay into Gail’s new home loan account an amount of R1 428?00 – a further saving – once the new bond is registered.

Lastly, early termination fees charged on date of cancellation (of the Yeoville property sold) will be rebated to Gail’s new home loan account once the new bond is registered.

Sorting out the finances

FNB’s affordability assessment will take into account Gail’s current earnings, how old she is, how long she will earn a salary and whether Gail has previously honoured her credit agreements. Upon completion, Gail will receive a Passport to Purchase, which gives her the comfort that the bank will provide a certain amount of finance so that she does not have to guess how much she can afford.

Gail, however, still needs to consider how this home loan will affect her personal situation. Is she willing to take on such a big responsibility? The new property’s running costs, electricity and other service increases should be considered. Remember we are expecting further electricity hikes, and interest rates are expected to increase in 2012. Gail needs to ensure that she can afford the higher repayments.

The good news is that Gail will not need to spend R1.4 million as Killarney and Illovo offer great accommodation at lower prices. By opting for a lower mortgage, Gail will more easily be able to handle interest rate increases, reduction of income, or retrenchment, and hopefully be able to save some money for retirement.

Based on this, Gail would not need to sell the Troyville or Fleurhof properties, and should definitely consider keeping them in her current portfolio. These properties generate a healthy return, and she can rely on selling them to create a buffer for tougher times or just free up cash for retirement.

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