Experts insist it is not always wise to plough money into a property in an effort to increase the price tag
Owning a property is undoubtedly a huge accomplishment for South Africans, but multiplying its value is another issue altogether. Property values cannot always be controlled, or understood, often leaving owners disappointed when General Valuation Rolls (GVA) are published.
This is evident from the tens of thousands of objections municipalities receive after every GVA. Location and size of erf are among the main drivers of a property’s price, with the same bricks and mortar in an upmarket suburb worth more than those in a downmarket location, says Erwin Rode of Rode & Associates.
Other determinants include the view from a property, the size of improvements and the quality, age and condition of such improvements. “Age detracts considerably from market value. The reason is that buyers are prepared to pay more for up-todate design and finishes. Maintenance costs are also lower.”
Rode says aesthetics play no role in determining value “as what is horrendous to one person is acceptable to another”. He says it is “highly likely” a dysfunctional municipality would depress property values. Factors that detract from value include a property situated on or next to a busy street, air pollution and, sometimes, the presence of a swimming pool.
“In some areas this may add value while in others, with a short swimming season, it adds no value or may even detract from value due to high upkeep and droughts,” Rode says.
A property’s value does not necessarily indicate its selling price. He explains that market value is an estimate at which a property would sell at the date of valuation.
“The courts in the UK allow an error of up to 10% before a valuer could be challenged for negligence. “However, it is important to acknowledge that a selling price is not necessarily equal to market value as either of the parties to the transaction may not have done their homework, may not have acted prudently, or may have acted under compulsion.”
Property values and selling prices can also collide at times of sales, often when homeowners have made additions or alterations with the expectation the costs will be recouped in the eventual sales price. This is particularly true in the current market, says Adrian Goslett, regional director and chief executive of Re/Max of Southern Africa.
“We are still experiencing the effects of being in a buyer’s market. Costly renovations are unlikely to pay off in the short-term but could benefit sellers in the medium to longterm when the market shifts in their favour.”
In terms of which renovations buyers prefer, he says this depends on the suburbs in which they are searching. Certain renovations and home extensions, such as adding space for gyms or pools, can come at a high cost, says Samuel Seeff, chairman of the Seeff Property Group.
This is especially problematic with the current escalations in building costs. “Property owners must keep a check on the cost versus the actual value it will add to the property.” He says while good finishes and adequate accommodation “generally do add value”, buyers will not necessarily pay more than the prevailing market values for them.
Over-capitalisation need not always be a bad thing
Over-capitalisation is a nasty word for homeowners with a desire to make alterations or additions to their home, but who know they will lose money if they ever had to sell.
So where does one find a balance between living in a home one loves and recouping that love from the amount a buyer is willing to pay? Should they even attempt to find a balance? Avoidance may not be a bad thing, suggests Rode & Associates’ Erwin Rode.
“It may be better to sell and buy an existing house which already has these extra facilities.” Of course, selling and buying bring other costs with them, like estate agent commission and transfer costs, not to mention new curtains, the cost of moving and so on, he says.
Many homeowners make additions and alterations for their own pleasure, even if they will not be rewarded by a selling price. Theresa Marais, Century 21’s franchisee in Knysna and Plett, advises them to do so: “Enjoy your renovations. Life is short.”
Even if homeowners make the risky decision to over-capitalise – which many are doing – it could still add some benefit at the time of sale, says Nelio Mendes, marketing manager at SAProperty.com.
“It can make a difference in the feeling a buyer gets when walking into a home, and can sometimes evoke an emotion that sticks in their mind. This could make it stand out over an average home with no such features.
“A home that is ‘show ready’ means it can be confidently shown off to purchasers without having them find things to criticise.” The type of over-capitalising features one chooses to add should be carefully considered, advises Lanice Steward, Pam Golding Properties’ head of training.
“A good example of this is a tennis court. This will only add value to a buyer if they play tennis.” She says owners who want to make additions they know they will enjoy should go ahead, but they hould not have expectations about recovering these expenses in the sale price.
Lcation is a big factor to bear in mind, says Caron Leslie, broker/owner of Re/Max Property Associates in Cape Town’s northern suburbs. “If sellers over-capitalise on a property that is situated in the right area, there will always be enough interest from buyers, so if they are willing to wait for sales prices to appreciate enough in value, they will eventually be able to recoup their costs.”
Echoing this, improvements to the property will “certainly assist with increasing the value of the property over a long period but, only to a degree”, says Susan Watts, broker/owner of Re/MaX Living in the Cape Town CBD and the Atlantic seaboard.
Modern, clean kitchens and bathrooms are top of buyers’ lists
Features that make a property stand out may be important considerations, but nothing is more crucial to buyers than a home that is well-maintained and in which everything works, “Use what you have before considering spending on renovations,” says Re/Max’s Susan Watts.
“Make sure everything the property currently has on offer is in working order and well-maintained.” Century 21’s Theresa Marais says: “Basic maintenance must be done so the property looks fresh.”
Agents agree kitchens and bathrooms carry the most importance for buyers, so investment into these rooms will be rewarded. Increasingly, bedrooms are also highly rated. “Bedrooms must be decently sized,” says Century 21’s Western Seaboard franchisee Marlene Snowdon. In terms of attractive aspects of a home, agents say:
One of the best value-adding renovations is a dual-living set-up or flatlet to generate monthly income – Caron Leslie, Re/Max Property Associates
Good security and, in Cape Town especially, well-points and drought-proof gardens. Buyers also love an outdoor braai area. – Marlene Snowdon, Century 21
The kitchen and bathrooms should be updated. Sometimes a study, separate scullery or top security system are deal makers. – Nelio Mendes, SAProperty.com
Security and water views attract buyers. Bathrooms and kitchens should be renovated if necessary. – Theresa Marais, Century 21
Most buyers prefer one large living room instead of two lounges. A dining area leading to the entertainment area is a plus. – Marlene Snowdon, Century 21
Pet-friendly properties are a plus for many buyers. Others include a garage or secure parking. – Susan Watts, Re/ Max Living
A state-of-the-art security system and low-maintenance features seem to win buyers. – Susan Watts, Re/Max Living
Security features and smaller gardens are popular. Many buyers are drawn to lock-up-and-go homes within security estates. –Caron Leslie, Re/Max Property Associates
Buyers are attracted to a well-appointed family/kitchen area leading out to a covered patio suitable for informal entertaining. – Lanice Steward, Pam Golding Properties
Solar heating or boreholes might be the tipping point for a buyer. – Lanice Steward, Pam Golding Properties
Don’t confuse the sums
The International Valuation Standards Council defines market value as: “The estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s length transaction, after proper marketing, wherein the parties had each acted knowledgeably, prudently and without compulsion.”
Erwin Rode, of Rode & Associates, says: “In theory, market value is an objective concept in that the crucial value determinants are largely or ideally derived from the marketplace and special circumstances are excluded.
“The use of market value as distinct from any other type of value is so common that economic agents often simply refer to ‘value’ when meaning ‘market value’.
What sells inside and outside
Buyers looking for homes in middleclass neighbourhoods are usually seeking three bedrooms, two bathrooms, an entertainment area, swimming pool and an established garden, says Seeff Property Group’s Samuel Seeff. “They also want to be close to schools and amenities.”
Owners looking to renovate their homes should ensure that properties are of a similar size and offer similar features to others in their neighbourhood, without enlarging it too much or overcapitalising on size or features.
“It is never a good idea to buy the biggest house in the neighbourhood and pay the highest price because you might not be able to sell it when the time comes.”
Buyers of properties in upper-ncome neighbourhoods generally want most bedrooms to have en-suite bathrooms, luxury living areas, spacious dining rooms able to seat 12 to 24 people with ease and a luxury kitchen with quality built-in appliances, Seeff says.
Security is now a must-have for most buyers, and studies or home offices are increasingly in demand. Cupboards and storage space in kitchens and bathrooms is crucial.
Avoid doing too much
Many home owners make the mistake of investing in items or upgrades that add no value, says Seeff’s Samuel Seeff.
Home automation – while hi-tech features are a definite drawcard, especially in upper-income areas, too many bells and whistles will not add value. Keep to what is needed, such as fibre or wi-fi connectivity, but keep it simple if the aim is to add value.
Greening features – while these are the trend of the moment, and may be an attractive feature in affluent areas, take care not to add too much. An extensive solar heating system, for example, can cost a lot more than the value it will add to your property.
Swimming pool – generally speaking, a pool adds value but keep away from elaborate features and heating which can be costly but add no value.