“Investing in vacant land with the intention of building is one of the less common paths to homeownership in South Africa. For those with plenty of patience and very specific ideas for their dream property, however, building from scratch can offer significant benefits,” says David Jacobs, Regional Sales Manager for the Rawson Property Group.
Lower Purchase Price – “The most obvious benefit of buying vacant land, as opposed to predeveloped property, is that the purchase price is going to be a lot lower,” Jacobs begins. “That generally means pretty significant savings on both transfer duty and municipal rates, which are based on purchase price and property value, respectively.”
Unfortunately, a lower purchase price doesn’t necessarily mean easier finance. In fact, most lenders will only finance up to around 60% of a vacant property’s purchase price.
“Buyers do generally need to put a much bigger deposit down on a vacant land purchase,” Jacobs acknowledges. “The upside is that you end up paying much less in interest over the lifetime of the loan, which can make a big difference in terms of total cost.”
Strategic potential – With populations growing and cities busting at the seams, new residential pockets are popping up all over the country. According to Jacobs, savvy investors able to get the jump on soon-to-be trendy spots could see excellent returns on their vacant land investment before so much as digging their first foundation.
“It’s not easy to predict where the next property hotspot is going to be, but if you get it right, the returns can be significant,” he says. “It’s less risky, of course, to buy land in an already established neighbourhood when possible, but this is inevitably more expensive and may not have quite the same growth potential.”
Blank slate – One of the more popular benefits of buying vacant land is the fact that you don’t have to deal with anyone else’s construction mistakes or poor design choices. That means no home inspections to uncover latent or patent defects, and no immediate maintenance apart from securing the erf and ensuring it stays neat and tidy.
“That doesn’t mean you can get away with no inspections whatsoever,” says Jacobs. “It’s always a good idea to do a land survey to understand the underlying geology, topography and potential challenges of a vacant plot. You’ll also want to check the supply of municipal services like water, waste and electricity, and make sure that the necessary zoning is in place for whatever you’re planning to build.”
Creative freedom – There is no substitute for the freedom of being able to build your dream home from scratch, with no limitations apart from those imposed by geography and/or any title deed conditions.
“For most owners, the biggest limitation when building from scratch is budget,” says Jacobs. “It’s a good idea to talk to an architect or builder in advance to get an idea of construction costs, and then budget for at least 30% more than predicted to account for any price increases or unexpected challenges.”
Future-forward design – Energy and water-saving features have become huge value-adds for South African households, but retrofitting these to existing structures isn’t always easy or affordable. Jacobs says building from scratch offers an unparalleled opportunity to enjoy the full spectrum of modern green building initiatives more effectively, efficiently, and affordably.
“I’d strongly suggest considering hybrid or fully off-grid power setups, rainwater collection and greywater recycling systems, along with energy saving features like double glazing,” he says. “These do, admittedly, come at a premium which can be challenging on a budget. That said, the long-term cost-savings – not to mention added value to the property – should more than make up for that initial investment within just a few years.”
Feline Devil
South Africa is the second largest economy on the continent, only exceeded by Nigeria, which has more than three times the population size. Over the past decade, South Africa has experienced rapid change and is ranked by the World Bank as an “upper middle-income country”. Of the more than 400 companies on the continent earning more than $1bn annually, about half are in South Africa. The country is nevertheless highly divided, with a large part of the population living in poverty. The division makes South Africa an interesting economy with possibilities in many segments. The country have well-developed infrastructure and world-class financial sector to support business activities, and is one of the highest ranking African countries on the ease of doing business index.