Message to South Africans who want to buy a home

While finding a property that offers good value for money may not be easy, experts say there are several things South Africans can do to spot hidden value and find affordable homes.

For astute South Africans who are willing to be patient and remove as much emotion from the decision as possible, finding a bargain property becomes even more likely.

The first important mindset shift is that buyers must not confuse value with price. “Just because you were able to negotiate a reduction in the asking price does not make it a bargain,” said Sentinel Homes managing director Renier Kriek.

“The price likely was inflated to begin with, because there are many incentives favouring higher listing prices.”

True bargains have some distinguishing characteristics to look out for. According to Kriek, motivated sellers are a good sign that a bargain sale may be possible.

Sellers who are amid life-changing circumstances, such as divorce, have fallen behind on their mortgage payments, or have tenants whom they are unable to evict, will be more likely to accept a lower offer.

Often, but not always, motivated sellers’ properties end up on auction. Bargain hunters may also visit dedicated online portals, such as MyRoof.co.za.

Prospective buyers can also look for court notices for foreclosure or sheriff’s actions as a source for good value propositions.

The market tends to devalue properties by more than the cost required to fix them up, which means that “fixer-upper” homes will naturally be more affordable.

A property with R200,000 worth of arrears maintenance will likely be listed for sale at around R1 million. Once all the maintenance has been completed, however, the property’s value increases to R1.5 million.

This means the value a buyer gains by doing the maintenance is often greater than the cost of the maintenance itself.

Spotting hidden value on the property market

Interestingly, Kriek pointed out that large plots also tend to offer good value for money. The average size of plots has been decreasing over time. The trend in urban areas is to densify, and this is encouraged by municipalities.

In a city like Cape Town, it is now possible for developers to build up to three dwellings on a single residential 1-zoned plot.

One must always consider other factors, such as rezoning and urban development regulations, and this may require consultation with a town planning expert.

If the size of the plot is larger than the average size of a new development in the area, there is likely to be surplus value.

However, if the property is marketed as a development opportunity, this likely signals that the price has already been inflated to account for the size aspect.

Kriek also pointed out that, in general, vacant houses and flats sell for less money than properties that are occupied.

This is mainly because a small crack or a spot on a carpet is more visible than properties that are inhabited. If someone can visualise the potential, it is a good buy.

According to Kriek, gentrification is also something worth looking out for when searching for properties that offer good value for money.

This occurs where the character of an urban area changes, for instance, when artists or young professionals start flocking to the area.

Good things to look out for are new art galleries and coffee shops opening around the area “This is a reliable indication that the area is gentrifying,” Kriek said.

“If you move quickly enough, you will be able to find a bargain that will increase in value rather quickly compared to similarly priced properties in other areas.”

When entering the market, Kriek said it is a good strategy to consider buying the smaller or cheaper property in a particular area.

The barrier to entry for these properties is generally lower than for the rest of the area, which means demand for them is higher. Higher demand translates into quicker price growth.

Home seekers on the lookout for a bargain must remain alert to illegal construction. “The risk associated with illegal building work is almost always not worth the discount on the price,” Kriek said.

If there are any doubts about the structural integrity of a building, consult professionals for an inspection. The benefit of a qualified home inspector, especially to inexperienced buyers, cannot be overstated.

Since kitchens and bathrooms are the most expensive parts of any residential property, carefully consider the conditions of these two areas.

More sage advice from Kriek is to avoid bargains close to open public spaces. These areas tend to devalue property if they are not well-maintained by local authorities.