In the past it has been a good business strategy to buy a property at a good price, fix up and then sell it again.
Is that still the case?
Buying and selling property is not as easy as it used to be.
In the past it was possible to buy a property, fix it up and resell it without taking transfer.
This was called a tripartite agreement.
You bought the property, found a buyer to buy it in your place for a higher price and then signed an agreement with the seller that the new buyer would take transfer from the buyer directly and you would take the profit.
This cannot be done anymore as sales have to be registered in the order of buyer.
So now you have the additional cost of taking transfer and transfer is expensive.
Even a cheap unit of R500 000 can cost you R30 000.
The property then has to be retransferred to the buyer, but your profit is slashed.
If you are a builder you can increase the value of the property by redecorating it, building on and generally fixing up.
But now if you build extra rooms you have to register with the National Home Builders Registration Council (NHBRC) and pay 1.5 percent of the cost of the extension.
The NHBRC is supposed to ensure that your building quality is good but in reality it does little or nothing to protect the buyer (certainly in my experience) and you are supposed to get your money back after five years.
Not exactly an encouragement to small builders to get in the upgrading and reselling market.
Especially when you are not allowed to start building until you have completed all the red tape – which line any government organisation runs at a snail’s pace.
So is it worth it buying, fixing up and reselling?
In my opinion, no.
All the costs, time and red tape simply make it not worthwhile.
To make a profit, the difference between the buying and the selling price has to be so wide that you are encouraged to do it.
- Mike Spencer is the founder and owner of Platinum Global. He is also a professional associated property valuer and consultant with work across the country as well as Eastern Europe and Australia.