As confidence wavers in the ability of financial institutions to provide an adequate haven for the investment capital of average South Africans, so the need to find strong viable alternatives for savings becomes more urgent. And it might not be the most obvious forms of conventional investment that are indicated.
“One turns again to the tried and tested receptacles for our savings – and property remains one of the most reliable investments, particularly in SA where security of ownership is specifically enshrined in our constitution,” says Jonty de la Porte, principal at DLP property brokers and managers. “But, whereas residential property is the default investment for many middle-income South Africans, there’s a case for exploring commercial, industrial or business property.”
The de la Porte Property group has been selling and leasing industrial and commercial property in most areas for the past 14 years. It also manages commercial and industrial property and a number of large sectional title business parks, including residential sectional title complexes.
De la Porte says that smaller investors often believe that the cost of investing in commercial, industrial and business property is too high. But it isn’t, he says.
“An investor can get a foot in the door for as little as R700 000 excluding VAT – which is reclaimable by VAT registered vendors – for a 100m2 business unit, and expect a yield on the rental income starting at a minimum of 7 percent. This, when added to capital growth, gives a very decent return on investment, generally higher than you can expect for a similar residential property.”
Leases are usually more secure than in residential property, and commercial property landlords don’t have to deal with the onerous terms of the Rental Act and the Consumer Protection Act by which residential tenants can give as little as 20 days notice to cancel leases.
Leases between corporate entities are not affected in this way. Where necessary, tenants can be evicted more straightforwardly and by and large don’t cause a lot of damage to a property. All that is needed before a change of tenancy in the case of a small industrial unit, is a paint touch up.
Most of the small units are in sectional title complexes, mixed-use business parks and office parks. This means that the body corporate looks after the management of the complex and takes care of the maintenance of the exterior, which makes management of the investment quite easy.
“The one downside is that generally a deposit of around 30 percent of the purchase price of the property is required and the bond is over 10 years, which makes repayments slightly higher than residential. That said, this means that you can pay the bond off quite quickly using the tenant’s rental as income,” says De La Porte.
In addition, these properties are also very popular with small business owner-occupiers who use their businesses to help pay their bonds and create investments for the future – and they get to cap their rentals against the current annual rental escalation around 9 percent at the moment.
“Areas such as Milnerton and Montague Gardens are doing well despite the economic times and vacancy rates are low. There is also almost no land for future expansion and development so you don’t face the risk of a competing development next door.
“Small business is recognised as the driver of future growth and small units will be in demand and especially ones in good established areas that are close to major transport routes, public transport and retail areas such as Century City,” says de la Porte.