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Property is one of the most popular ways to invest in South Africa.
It seems like the go-to for most South Africans. But how do they do it?
The reality is there are several ways to invest in property. Whether you have millions in the bank or just a couple of hundred, you can invest in property.
Here’s how to do it.
How to invest in property in South Africa
South Africans can invest in property via direct or indirect property investment. Direct property investment includes buying a physical property, like buying a home, investing in property to rent out or house flipping. Indirect property investments provide a way to invest partially. This could be through property shares, Real Estate Investment Trusts (REITs) or property unit trust funds.
Which option works best depends on the investor’s goals, budget, and preferred level of involvement.
The good news is, there’s something for everybody.
Let’s go a little deeper.
Ways of investing in property
There are two main approaches to property investment:
- Direct property investment
- Indirect (or managed) property investments
Direct property investment
When someone invests in property directly, they’re buying the real estate. Either alone or with a spouse, family members, or partners. Direct property investment involves purchasing physical property and managing or making the property more valuable to generate returns.
Here are the main types of direct property investments:
- Buying property
- Long-term rental properties
- Short-term rental properties
- House flipping
Direct property investment is for people who prefer full control and ownership (and can afford to invest directly).
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Let’s go over the direct-investment types…
Buying Property
This involves purchasing a property [and building a house] to sell it later and make a profit after the value goes up. Investors can look for undervalued properties, improve them, or simply wait for the market to grow before selling.
Homeowners also buy or build a home to live in so they can offset the cost of renting in the future.
Costs to keep in mind: Buying property includes expenses such as transfer fees, bond registration fees, and ongoing maintenance. Plus there are tax implications (capital gains) after selling.
📖 Related content: How much does it cost to build a house in South Africa?
Long-term rental properties
Investing in long-term rental properties focuses on buying residential or commercial properties to rent out. Investors make money from monthly rent, which can cover mortgage payments, maintenance, and other costs. Plus, over time, the value of the property can grow to increase the asset’s value.
Costs to keep in mind: Initial setup includes transfer costs and bond registration. Ongoing costs include property management fees (if hiring a third-party service), insurance, and maintenance.
📖 Related content: Landlord and tenant rights (what landlord can and cannot do)
Short-term rental properties
Airbnb is an example of short-term rental. In areas where there are lots of tourists or visitors, short-term rentals have become a popular property investment. Investors simply furnish properties and make them attractive to potential visitors, and rent them out for short-term stays. Keep in mind, this approach can be a little hands-on unless you can find and afford to pay a third party to manage the property for you.
Costs to keep in mind: Real estate, furniture, platform fees, photography, and ongoing cleaning and maintenance costs.
House flipping
House flipping involves buying properties that need to be renovated, making improvements, and then selling them for a profit. This is a more hands-on approach and requires some construction know-how, market trend insight, and an understanding of the costs associated with renovations. Flippers benefit from quick returns after selling the property at a higher price after renovating it.
Costs to keep in mind: Renovation costs, legal fees, and capital gains tax on the sale.
Most people rely on home loans for direct property investments. Make sure you qualify for a home loan if you want to go this investment route.
That’s direct. Now, what about indirect?
Glad you asked.
Indirect (or managed) property investments
When someone invests in property indirectly, they’re investing in real estate without buying physical properties. Buying property shares or investing in managed property funds are examples of indirect property investments.
This way, investors can invest in property at a fraction of the price of buying the actual real estate. Plus, since it’s managed, it can be very hands-off.
Here are three primary types of indirect property investments:
- Property unit trust funds
- Real Estate Investment Trusts (REITs)
- Property shares
Indirect property investment is for people who want to benefit from the performance of a managed property, people who may not be able to afford a direct investment, or someone who just wants ‘hands-off’ exposure to property investing.
Property unit trust funds
These are collective investment schemes that pool investor funds to invest in various property assets, often including commercial and industrial properties. Managed by professional fund managers, property unit trusts diversify risk across multiple assets and provide a more stable return over time.
Investors can buy units in these funds through asset management companies (like Allan Gray or Coronation) or financial advisors.
Costs to keep in mind: Management fees and brokerage fees apply to these funds.
Real Estate Investment Trusts (REITs)
REITs are publicly traded companies that own, manage, or finance income-generating real estate. Similar to other stocks, just property focussed. Investing in REITs gives investors access to a diversified portfolio of commercial, retail, or industrial properties. REITs are easy to sell and distribute dividends regularly.
Costs to keep in mind: Stock trading fees and market-related risks.
This next one is pretty cool.
Property shares
Property shares are fractional investments that allow individuals to invest in a property or a portfolio of properties without buying the whole piece of real estate. In South Africa, platforms like EasyProperties (part of EasyEquities) let individuals invest small amounts into property shares. Which makes real estate investing accessible to more South Africans.
Costs to keep in mind: Trading and brokerage fees.
How to buy property shares in South Africa
To buy property shares in South Africa, open an account with a fractional property investment platform like EasyProperties. Browse the listings, do some research, then make an investment.
Step-by-step:
- Sign up on an investment platform
- Verify your account and complete the FICA verification
- Browse available property listings
- Invest in shares
- Track your income distributions and the property value on the platform
📖 Related content: Best investments in South Africa
In summary
Anyone can invest in property in South Africa.
There are several options. Choose the ones that fit your current objectives.
And remember, there are fees and costs, plus the property market can go up and down. While property is generally considered a safer investment in South Africa, that doesn’t guarantee anything.
A little homework and some basic maths can go a long way.
Want to learn more? Keep reading on Everycent.
