Question:
A seemingly well known company called St. James's land is marketing freehold stands in South Africa. Do you know anything about it?

Would you say it is a viable investment solution? I could use equity from my home bond to finance this if the return is more than 15 percent otherwise it would be better (as you have stated many times before) to leave the money in the bond.

I'm no expert investor and am therefore very afraid of this.

Answer:
I do not want to comment on St. James’s Land as a company. I do, however, have strong opinions on buying empty plots of land in South Africa.

About three years ago a good friend of mine told me about a new development going up in the north of Pretoria where stands were apparently being sold for ‘fire sale’ prices. All they required was an R8000 deposit to secure ownership of one of many 800m² stands that was going for R365 000.

I was not interested and told him my reasons. He said I was a sissy and went ahead and purchased two stands.

Two years later the property was proclaimed and the transfer effected. Thinking he was going to double his money he put them on the market.

In the meantime he was paying the bonds on these — about R8000 per month plus double rates and taxes (R1000 per month) — plus levies of another R900 per month (still can’t figure out what the levies were for as there was nothing on the land to ‘maintain’). So, he was in for R10 000 per month until he sold the properties.

For a year now he has been choking on the R10 000 repayment as his stands, along with acres of others, have become white elephants. Now they have launched phase two of the development and they can’t even sell the ones in phase one. And guess what? The phase two stands are cheaper than the phase one stands. I believe he finally got an offer last week for R340 000. He is taking it to stop the ‘bleeding’, so this exercise thus far has cost him R140 000 with no return.

What do I think of buying stands on spec? Stay away unless, of course, you are planning to build on them and you have the resources to do so.

If they are selling land overseas this is also risky. The United Kingdom has strict zoning laws and many of the companies that buy up land to resell to investors are banking on the authorities to change the zoning laws. By all accounts the Brits are really sticky on rezoning, so people may be investing in farm land and unless they invest in a herd of Jerseys they are not going to be making money anytime soon.

The sellers of the land have nothing to lose as they have already made their profit. So, using the equity in your home loan to embark on a venture like this is, well, just plain crazy. This is a high risk investment and you could find yourself owning a non performing asset.

You could risk it if you have money to burn and losing it won’t make a difference to your finances. I would not.