The first port of call in determining whether residential property is a good investment is to calculate and compare the cost per square metre, says Erwin Rode of Rode & Associates.
It is a popular rule of thumb and this first estimate is a good place to start, he adds.
“There are a few practical problems but, ideally, this is the best way to judge property,” reckons John Loos, FNB property economist.
This method of comparison gives investors a clear indication of whether they are getting good value for money, says Keimpe Weistra of Pam Golding Properties.
This first estimate provides a potential investor with a rough ballpark figure but one must be aware of certain traps, warns Rode.
Firstly, there is the danger of comparing apples with pears, says Rode. An investor cannot compare a brand new house with one that is twenty years old.
Rode says the second trap that investors fall into is comparing locations.
Talking in particular about residential properties along the coastline, Weistra says investors will compare costs per square metre and then make an informed decision as to where the best investments are.
“Buyers are increasingly becoming aware of how to judge a good investment and the quality of a development,” notes Weistra.
He says that investors look at added benefits and the developer’s previous work in order to gauge whether they will be afforded good returns on their capital.
Potential investors should be careful to take note of the figures used in the calculations. In some cases, the size and value of the land is not taken into account and the calculation is based solely on the house itself.
In practice, when prices per square metre are quoted, they implicitly include the value of the land, explains Rode.
“The building and land always go together,” he adds.
According to Pam Golding figures, the average going rate for ocean property in Jeffreys Bay is R16 000/m2.
In comparison, similar prime beachfront units in Umhlanga are selling between R20 000-R25 000/m2 and from R16 000 to R19 000/m2 at the Durban Waterfront and Marine Parade areas.
On the Western Cape’s Atlantic Seaboard, luxury properties in Sea Point range from around R25 000/m2, while top-end units in Clifton and around the V&A Waterfront are in the region of R37 000 to R60 000/m2.
