Buying in the countryside? Beware of over-capitalisation

With the growth of rural outlying franchises in the Rawson Property Group, a very real danger has to be pointed out to those who, looking for a new lifestyle, investigate the possibility of buying in the countryside. Often, says Bill Rawson, Chairman of the Rawson Property Group, they are motivated by a genuine desire to reinvent their lives and to adopt a new, more detached attitude to the ‘driven’ ways in which South African business and professional people often lead their lives today.

Discussing this matter recently, Rawson said that the danger to which he was referring was not, as some of his audience had expected, the possibility of boredom or a lack of congenial company in outlying areas. Rather, he said, the danger was the simple fact that it was all too easy, when buying in rural districts, to over-capitalise on your property.

“It remains true,” said Rawson, “that rural properties have felt the effects of the recession as much as those in the cities and in some areas, such as the Cape West Coast and the KZN South Coast, the drop-offs from initial values were really spectacular. This, of course, means that for another six to twelve months it should be possible to buy very good value properties in these areas, although there are signs that a recovery is now beginning to take place.”

“However, it has to be recognised that if the buyer intends to sell within a reasonably short period of time, say three to four years, he may well find it difficult, even with the recovery taking place, to achieve any sort of significant profit on his resale. The recovery here, although evident, is not as swift and considerably less obvious than it is right now in the high demand urban areas.”

These facts, said Rawson, apply equally to rentals: they, too, are low in outlying areas and are very unlikely to take a big step up, although they are also beginning to show rises.

“Our Hermanus franchisee, Peter Greyling, says that he has three or four bedroom homes that can be rented for as low as R7,000 per month. Those who think that if, after giving it a try, they may dislike country living, should also keep this fact in mind, although it does, in my view, often make sense to hold on and rent out a property until such time as its sales value has increased.”

Rawson added that retired people often ‘go overboard’ on home improvements, especially if they enjoy project management or DIY work. This, too, he said, all too often does lead to over-capitalisation in country properties.

Those who plan to supplement their pension fund income by running a B&B or self-catering establishment in their property or attached to their country home should ask themselves if they are suited to what is often a menial service-orientated job.

Asked if he has many properties in the rural areas, Rawson said that the vast majority of those he owns are in the high demand suburban areas where price appreciation can be relied upon and where rentals, right now, are appreciating year-by-year in a very satisfactory way.