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Investment advice for R3.5-million dream home prize

Private Property partnered with Top Billing, a prime-time lifestyle TV show, to bring one lucky winner the largest prize ever given away in Africa: a R5-million lifestyle that includes a R3.5-million apartment in Cape Town.
The apartment features an exclusive architectural interior design, professional décor with quality fittings and finishes, and smart technology solutions. Special features include optimal space utilisation across double-volume living areas, a balcony with a vertical outdoor garden, double garage space, and panoramic views across Cape Town's harbour and Table Mountain.

"The value of a property is not only about the location, quality of finishes or potential return," says Simon Bray, Private Property COO. "A property sale comes about when a buyer falls in love with a home. Often this decision comes down to a buyer's emotional response to the home; the x-factor that separates one house from the rest. SA's best design talent has added personality to this apartment and you can feel it as you walk through the door. This character is sure to win over prospective buyers or tenants and result in a higher than market value for this property."

Classed as a sectional title investment, the apartment is located in the mixed-use Mirage development in Cape Town's De Waterkant district, where average floor prices range from R35,000 to R45,000m².

Rob Stefanutto, Managing Director of Dogon Property Group and exclusive Mirage marketing agent, says a shortage of vacant land available for development close to the city ensures investors of a unique position in a central location.

Private Property has obtained the professional opinions of five Cape-based real estate professionals on the long- and short-term investment potential of the prize. Their overall sentiment regarding ownership and the future investment prospects of the apartment is that long-term investment value beats the short-term.

Would it make financial sense to rent out the apartment for a while?
Adrian Goslett - Managing Director, RE/MAX Southern Africa: "Rental income on this prime property will generate cash flow from day one, and long-term leases are definitely advisable. Depending on individual owners, short-term letting has the benefit of seasonal periods, when tourists want to be near the action and close to public transport, with reasonable commuting distances between the V&A Waterfront, the city and local beaches.

Bruce Swain - Managing Director Franchise Operations, Leapfrog Property Group: "When this type of apartment is not yet a paid up asset, but is financed by a mortgage loan, the bond repayments could equate to about R35,000 per month. Investors should bear in mind that monthly payments on long leases over twelve-month periods do not necessarily equate to property values. Rental income in this area is expected to reach between R15,000 and R20,000 per month."

Does De Waterkant represent a good investment location and area?
Toni Enderly - Chief Executive Officer, Realtors of Excellence: "Demand for residential property and sectional title units in hot-spot central locations such as De Waterkant has escalated dramatically. Growth of 20% since 2013, both in the number of sales and units prices in this area, has overtaken any performances during the past six to seven years. Stock shortages are due to high demand for the coastal lifestyle, the city's top rated status as a national and global tourist destination, and a favourable exchange rate.

Would you advise that the winner sell the apartment immediately, or hang on to it?
Swain: "Holding onto the apartment for as long as possible is ideal but depends on the new owner's existing involvement in the property market and individual financial circumstances. Selling in the short-term will not only reduce potentially lucrative, and investible, monthly rental income earnings over the long-term, it will also limit capital growth after one year, of between three to 5% as opposed to six to 8% over three to five years. Best practice is to use rental income from a long lease to pay off an existing bond as soon as possible."

Enderly: "Try not to look for instant gratification but rather hold on to this asset and follow the real growth prospects of property investments, which are only seen over the longer term. Ideally, the owner should consider forming a holding trust so that rental payments generate disposable or investable monthly income in the short-term while capital growth accumulates for years to come."

Stefanutto: "Selling a paid-up asset will not only attract excessive Capital Gains Tax, but replacement costs within one year will be subject to a 30% escalation due to rising construction costs."

Is the value of this apartment likely to escalate in the short- or long-term?
Samuel Seeff - Chairman, Seeff Properties: "Values of new builds entering the market depend on a number of factors, including value on completion and how many other units in the block are on sale at the same time. Rates per square metre are determined once a development joins the general market of an area. Sellers cannot expect higher growth than four to 5% in the short-term, over 12 to 18 months. However, when looking at general market conditions, which depend on stability and confidence, the unit's value is likely to increase over three to five years.

    
 

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