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How To Start A Property Development Business

The first thing you must have is a good business plan.

Entrepreneur

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Content in this guide

  1. Business plan
  2. Zoning
  3. Title Deeds
  4. Find out who owns the land
  5. Financial support
  6. Building regulations
  7. Join the NHBRC
  8. Grading levels

1. Business plan

Business plan

Business plan advice

In the business plan you also have to discuss how you intend to cope with the proposed electricity tariff increases and allow for possible interest rates hikes which would affect the profitability of the project.

Another important issue which must feature in your business plan is the cost of managing, maintaining and securing the residence.

Any organisation that is providing millions of Rand to develop such a project will need to be sure that the residence will at all times be properly maintained and is secure.

Without a sound business plan, you’ll be unable to find funding. It’s important to remember that a business plan is more than a means to money; it’s also the blueprint of the business and the best way to test whether or not the business is feasible.

You must show clearly in the business plan that you have researched the market thoroughly and are able to show that the students (who are always short of money) will and can afford to rent the accommodation as they are the key to the success of the project.

2. Zoning

property-zoning

Zone your business using these tips

Make sure that the property is zoned for this type of accommodation. Zoning is the grading of properties in terms of what it can be used for and what can be built on that property. Zoning schemes are imposed by Provincial Legislation and administered by Municipalities.

Zoning is the grading of properties in terms of what it can be used for and what can be built on that property. Zoning schemes are imposed by Provincial Legislation and administered by Municipalities.

South Africa’s laws require that in order to develop townhouses in a residential area the property must be zoned correctly (the property may only be zoned to develop one dwelling and not a number of different units).

Related: Zoning and permits

If the property is zoned incorrectly, you have to apply for rezoning. Each local authority has different parameters in order to rezone property.

3. Title Deeds

Title Deeds

You will need the Title Deeds

In addition to the zoning regulations, development is also controlled by conditions of title. These conditions are set out in the Title Deed of each property, and can restrict the way in which a property may be developed.

Related: How do I re-zone a property for commercial use?

Any development of land that ignores this legislation and its regulations can result in prosecution in terms of the applicable legislation.

The zoning regulations as well as the property description, and the size, orientation and other details can be obtained from the local municipally office and this department can also provide information regarding the National Building Regulations.

If a proposed townhouse development needs to re rezoned the application is a formal procedure. As it is a very complex procedure, it is best to consult a professional town planning consultant or other professional such as a land surveyor or a lawyer.

There are other costs to worry about as well. These include preparing the application, i.e. professional fees, the application fee charged by the council and the cost of drawing up plans.

Depending on the type of application, obtaining a decision may take as long as 12 months.

After the application is submitted it is circulated to relevant Council departments and agencies for comment.

Find out who owns the land

You will also have to find out who owns the land. Every property in South Africa has to be registered with the Deeds Registries Office in South Africa.

Related: How to query details of ownership of commercial property?

The deed constitutes proof of who owns the property. The deeds office keeps a record of all property transactions. If a title deed is destroyed or lost, application can be made to the deeds office for a duplicate original of the deed.

4. Financial support

business-funding

Do you need to fund this business?

As this is an education project, contact the Small Enterprise Development Agency, who provide free mentorship and guidance that will help will all the important steps in starting a successful business.

They will point you in the right direction in order to find funding and may also be able to help you get funding through the Department of Education.

However, although they do not fund projects, they will certainly be able to refer you to the right institutions. Other funders include:

NEF Imbewu Entrepreneurship Finance

They provide risk capital to new businesses in the property development arena. Visit their website for more information.

IDC – Healthcare and Education Fund

This fund supports education. Applications for financial assistance are evaluated primarily for economic merit (viability), while collateral is a secondary issue.  The policy is to have interest rates between 2 below- and 5% above prime overdraft rate. Download the pdf here.

Umsobomvu Youth Fund

Enterprise Finance aims to promote entrepreneurship among young people, so it provides funding to the youth (18-35 years old) to help them start a new business or grow an existing one. However you will have to demonstrate commitment to the venture and that it will be economically viable. Visit the website .

5. Building regulations

building-regulations

Do you know about South Africa’s building regulations

It is widely known that the regulations for the building industry in this country are far less stringent than those of other countries.

A good reputation is so important

A reputable developer will never cut corners when building. By law certain standards have to be met throughout the building process. Architectural plans must adhere to council regulations and be passed by the local municipality.

Approval

Foundations must be approved by a building inspector before concrete is cast; the structure undergoes a damp proof test, the roof structure has to be passed and when the building is complete it must pass a final inspection.

Building inspectors can make or break a development

No loan for the construction of townhouses will be authorised by a bank without a building inspector approved by the National Home Builders Registration Council (NHBRC) passing the structure. If you plan to sell townhouses and have cut corners, buyers will be unable to obtain funding to buy a town house.

The Builders Manual

Before you start building contact the NHBRC and arrange to get a copy of their guide, “The Builders Manual”. It is a complete guide to building and explains costing of materials, planning and just about everything you need to know.

Download ‘A Guide to the Home Building’ manual here.

There is no such thing as a free ride

There is software on the market which is designed to assist owner builders to effectively cost all aspects of construction including labour, materials and equipment. However, it’s unlikely that you will find free software that you can use effectively. Contact the NHBRC for advice.

6. Join the NHBRC

NHBRC-logo

NHBRC

“Avoiding the professional services of a Quality Surveyor could be a foolish decision”, says Zweli Mtetwa, Public Relations Manager for the NHBRC.

“We can help. We look at plans and can advise the best route to take, discuss the right materials and check quotes to ensure that castings’ are correct and that the owner-builder is not being over charged. The only requirement is that the builder has to join the NHBRC. Registration with the NHBRC will also give builders credibility” advises Mtetwa.

Any enterprise that wants to tender work from the public sector in the construction industry, must register with the CIDB.

Before you can register with the Construction Industry Development Board (CIDB) you must have established your business and have a history of various construction projects under your belt.

For registration and membership fees – download the NHBRC registration form here.

The CIDB registration qualifies you for projects in the Public Sector

Any enterprise that wants to tender work from the public sector in the construction industry, must register with the CIDB. To register with CIDB your enterprise must be a registered business entity with the Companies and Intellectual Property Commission (CIPC).

Register the work you have completed

You must register any construction work you have done. These include contracts for the combination of goods and services, extension construction, installations, repairs, maintenance, renewals, renovations, alterations, dismantling or demolition of buildings and engineering infrastructure.

These projects must be above R200 000 for public sector and R300 000 for private sector. This creates a track record for your business which you require to register with CIDB.

Finance is not the only criteria

Your company’s ability to finance a particular construction project does not automatically mean you will qualify for a project; you need to have solid experience behind you. Nor does a grading designation actually determine which project you will be able to do.

7. Grading levels

Grading levels

Nine Grading levels in South Africa

There are nine grading levels

The different grades show the size of contracts a contractor is capable of doing. This is based on financial and works criteria. The financial criterion comprises best annual turnover, track record, and available capital.

Works capability assesses a contractor’s track record and the number of qualified professionals in certain specialist categories (e.g. electrical).

Financial capability

This is evaluated in terms of the contractor’s best annual turnover during the past two years, the largest contract the contractor has performed in the past five years, and the value of the available capital that a contractor is able to secure in order to perform a construction contract.

Works capability

This area is evaluated in terms of the largest contract the contractor has performed in the class of works applied for, as well as compliance with statutory requirements (e.g. registration with the Electrical Contractors’ Board of SA).

The contractor must also have the required number of qualified professionals in their employ for the grade applied for. These can be either full-time employees or full-time equivalent.

There are various levels of CIDB Grading. Always apply for the level you are capable of:

CIDB Grading Level

When the contractor grading is granted it will consists of a combination of alphanumeric characters that represents the capability of the contractor in a particular class of works. E.g., 5GB represents a contractor that is capable of performing a contract to the value of R6.5m in a General Building class of work.

A contractor can also apply for recognition as a “potentially emerging contractor”. Potentially Emerging status indicates that the contractor has significant development potential, but has impediments that must be overcome.

Related: I would like to get started in the property sector. What should I know before starting a real estate or property related business?

Entrepreneur Magazine is South Africa's top read business publication with the highest readership per month according to AMPS. The title has won seven major publishing excellence awards since it's launch in 2006. Entrepreneur Magazine is the "how-to" handbook for growing companies. Find us on Google+ here.

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Start-up Industry Specific

Want To Start A Property Business That Buys Property And Rents It Out?

Information on starting a property renting business.

Shawn Theunissen

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Start your property rental business using this guide

I would like to start a property business where I purchase the properties and I rent it out, I already have a paid up property that I am renting out but my taxes are too high on the rental income so I am considering starting up a business. Could you advise me on where I can get more information on the requirements to start this and provide some guidance on whether it would be wise to pursue this business?

Before starting any business, it’s important that you’re absolutely clear about why you’re doing it – and that it’s going to be something that excites you, drives you and challenges you in the long-term.

If you’re only considering starting a property investment and management company to try and reduce your taxable income, then I don’t believe this is an appropriate – or a sustainable – solution.

Related: How The Property Brothers Built Up A Real-Estate And Entertainment Empire One Brick At A Time

You should rather consult a reputable financial adviser about other investment options that would better suit your personal needs.

If owning and managing properties is, however, an opportunity you would like to pursue, I would then recommend that you start off by equipping yourself with a proper understanding of what it actually means to be a landlord.

This will help you to make an informed decision about whether or not you want to start this (ad)venture as an entrepreneur. At a very basic level, here are some of the things you might want to consider to determine if this is the right business for you:

Initial cost

initial-cost-and-property

This is what you need to consider, cost wise, when you start up your business

You need to consider the initial cost that you will be incurring when setting up the business, especially since you have a property in your personal capacity.

You will need to transfer the property from your personal capacity into your business and pay transfer fees and transfer costs.

These costs will be calculated based on the current value of the property.

The work and planning

No matter whether you’re a residential or commercial landlord, property management requires a great deal of work and planning. Remember you will be responsible for all aspects of the property: From purchasing it to maintaining it on a day-to-day basis.

Related: Real Estate Business Plan Sample

This involves everything from transfer to managing the monthly utility bills, all the way through to replacing the geyser when it bursts and ensuring your tenants behave appropriately in the building. You would also need to source your tenants and ensure that they pay you on time.

All by yourself

business-owner-development

Starting your business alone? You need to know this

From a start-up perspective, you would probably need to do all of this yourself in the beginning. As such, you would need to work to build up your own database of reputable suppliers: Plumbers, electricians and handymen.

It’s important that you find experienced, qualified suppliers that you can trust, and who will be able to deliver on time and cost-effectively.

Related: Handyman Joshua Cox Of Trade-Mark On Thinking Like A Tech Start-Up

This can be a very time consuming process. Also consider that you would need to be on hand to facilitate all of this work: Arranging the call-out with the supplier and the tenant; overseeing the work delivered; paying the supplier etc.

Business owner development

Above and beyond that, you’re then going to need to develop yourself as a business owner. You will need to equip yourself with the skills and knowledge required to lead and manage this business in order to make it both sustainable and profitable.

This will require a significant investment from you: Time, effort and money. The more you commit to this journey of personal and professional development, the better your chances of success.

If you can picture yourself doing – and enjoying – all of the above, it’s then equally important to consider if this is a viable opportunity.

The greatest barrier to entry in this sector for you as an entrepreneur is probably going to be finance.

You need to be conscious of this from the outset.

  • Do you already have access to the funds you need to purchase the properties you are going to rent out?
  • If not, what are your plans to secure this funding? And what are the returns you are expecting?
  • Also consider the funding of the business itself. How will you finance this, especially during the first year?

My recommendation here is to take the time to do your homework – and the maths. While this could be a business opportunity, it might not be something that will be possible for you to do on your own.

Related: What You Need To Know To Become the Next Property Entrepreneur

If you have a feasible plan regarding the above, you then need to start working on developing a model for this business – as well as a strategy and plan. All of these will require research on your behalf: From reading Entrepreneur to accessing websites, possibly visiting walk-in centres etc.

This will include unpacking the actual opportunity itself – and determining if there really is a demand for your service offering.

Please note that the above are thinking or “trigger-points” – listed simply to give you an idea of some of the things you need to consider, as well as the mindset you will potentially need to adopt as an entrepreneur. Your response to them should give you a good sense of if this is the path you wish to walk.

Related: 9 Quotes Every Entrepreneur Should Live By

Remember that entrepreneurship is a journey – and every day on this road is a learning opportunity. If it is for you, embrace it whole-heartedly, don’t be afraid of failure and be sure to seek out the assistance available to you.

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Start-up Industry Specific

How do I start a travel agency?

A guide to starting out in the travel agency sector.

Entrepreneur

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World-wide, tourism is one of the fastest-growing industries; Looking back to 1950 approximately 25 million people travelled abroad worldwide. That figure grew to 700 million by 2001. The World Tourism Organisation predicts that this will increase to over one billion by 2010.

Related: Travel Tour Agency Sample Business Plan

The local travel industry has been boosted by a growing number of foreign tourists coming to South Africa each year and the FIFA 2010 World Cup is expected to boost the industry even more.

The retail travel agency business offers a variety of options. There are three sectors to this industry: retailers (travel agency), wholesalers (selling bulk product to retailers) and tour operators (handle group travel).

A retail travel agency sells everything from airline bookings, accommodation, guided tours, cruises, adventure holidays, car hire reservations and more to the public. One can also operate a home based agency or buy a franchise.

Traditional retail travel agencies

Traditional retail travel agencies are still an option but recent changes in the industry (airlines no longer pay commission to travel agents for booking flights) have seen a growth in home-based travel businesses mushrooming all over South Africa.

Related: Register A Company In South Africa

Many successful small agencies or home bases businesses focus on a particular area of the industry. Here are just some of the many sectors a small business can focus on:

  • Cruise holidays
  • Honeymoon packages
  • Snow skiing tours
  • Adventure trips
  • Eco tourism
  • Golfing holidays
  • Medical recuperation holidays
  • Spa Getaways
  • Luxury holidays
  • Business travel
  • Sports events
  • Airport/hotel transfers
  • Travel guides

Passport and visa services

“We are seeing more and more retailers opening, especially BEE agencies in the Eastern Cape, Limpopo and Mpumalanga and they are running good sound businesses,” says Robyn Christie, CEO of ASATA.

Related: 4 Tips To Secure Funding For Your Start-up

“From a travel prospective securing corporate business is very lucrative, but it is imperative that your business is seen as credible.”

What training is required?

If you plan to sell air tickets through a retail travel agency, then you will need the International Air Travel Association (IATA) Diploma. This has become the benchmark for the travel industry, and provides credibility to deal with airlines and other partners in the travel sector.

The diploma will give you a broad understanding of travel agency and airline operations, equip you to advise clients, make travel arrangements and reservations, calculate airfares, and complete international travel documents so that they comply with IATA rules and procedures.

The best route to take is to get the correct qualification to operate in this industry:

  • You will need to do the diploma at a recognised educational institution; have completed Grade 12 to be admitted to the course.
  • Tourism (N4 to N6) diploma and certificate courses are offered at a number of Further Education and Training (FET) colleges. Contact the FET College in your area and ask about their courses.

Travel and Tourism diploma courses are offered by universities.

Are there formal bodies that a travel agency must register with?

Airlines have moved away from a commission system, so travel agencies are essentially retail service providers who charge a mark-up fee for their professional services. Credibility is therefore become very important.

Credibility

Christie explains that The South African Association of Travel Agents (ASATA) is the regulator of the industry.

“Members are bound by the ASATA constitution. The national and international airlines and ASATA enjoy excellent co-operation and we are also very involved with the environmental aspect of the travel industry.”

Being part of the industry association such as ASATA will give your customers more confidence in your skills and your reliability.

Related: Start This Business With Zero Advertising Budget And No Need For Premises

And because of the strong influence ASATA has over the industry, potential customers will not consider you as a fly-by-night operation.

ASATA Members are engaged in travel business as either a retail travel agent or as a tour operator or wholesaler. Full ASATA Membership may only be obtained if your business has been operating for a period of one year or more.

In order to encourage membership of new travel businesses, Provisional

Membership may be obtained by start-up companies

Within the travel and tourism industry there are a number of organisations and associations that support small business to establish themselves.

They also regulate the industry and ensure that local tourism offers a professional and world-class service to tourists visiting South Africa.

When applying for finance, it’s advisable to have training or experience in the tourism industry or have a partner who does have the necessary experience. These organisations provide funding or funding advice to start-ups in the tourism industry.

 Funding

1. Tourism Enterprise Programme (TEP)
The TEP is a partnership between the Department of Environmental Affairs and Tourism and the Business Trust. This programme supports the growth of tourism SMMEs, often by establishing links between SMMEs and customers.

2. Business Partners
Business Partners supports entrepreneurs with regard to the buying of hotels, guesthouses, game lodges, starting or expanding a travel agency, tour operating business, tourist information centre, a curio shop or entertainment facilities for tourists.

3. IDC Tourism Fund
The IDC Tourism Fund aim is to establish good quality hotels in South Africa and the rest of Africa. It also covers other sectors such as cultural and heritage products, arts & crafts and business tourism.

It supports BEE projects with significant development impact in townships and rural areas while adhering to the Tourism BEE Charter requirements.

It also aims to increase participation in projects related to the 2010 FIFA Soccer World Cup.

4. Khula Credit Indemnity Scheme     

The Khula Credit Indemnity Scheme fund helps entrepreneurs who wish to start or expand small to medium sized businesses but do not have collateral/security qualify through traditional financing institutions such as banks.

Related: (Infographic) The 20 Most Common Reasons Start-ups Fail And How To Avoid Them

The Scheme is open to all race groups; however the fund focuses on Black (African, Indian and Coloured) and female entrepreneurs. All the major banks, such as FNB, Standard Bank, Absa and Nedbank can provide more information.

Is a website necessary for a travel agency?

Consumers are using the Internet more and more to search for travel options and to make bookings. It’s vital that you have a website that attracts customers.

It might be too expensive to build and maintain a site where visitors can make bookings and payments online, but you can at least develop a site with information about what travel options you offer and what special deals are available.

This information can prompt a consumer to contact you by phone or email to make a booking. Beware the virtual world of travel is a highly contested one and ensuring that your website has an online presence will require a large investment.

Search Engine Optimization and online advertising using a medium such as Google Adwords will pay off, but do your research first to ascertain whether you are willing to invest the time and money.

Travel Agency Franchises

If you go the franchise route you will be your own boss and own your own business, but have the professional support of one of an experienced and respected franchisor, such as Harvey World Travel, not just for travel knowledge, but with business practice and financing. FASA is the Franchise Association of Southern Africa.

Related: BrightRock’s 5 Entrepreneurial Tips For Start-ups

Franchising is universally accepted as one of the most successful business formats. FASA, therefore, defines how to franchise and ensures that all parties follow internationally accepted franchise business principles

Tourism support and resources

These associations can provide useful information with regard to marketing and promoting an enterprise in the tourism industry

1. Fair Trade in Tourism South Africa (FTTSA)
Their aim is to facilitate access to tourism markets for disadvantaged tourism enterprises.
Visit FTTSA’s website for more information.

2. Southern Africa Tourism Services Association (SATSA)

SATSA represents major role players including airlines, coach operators, tour operators, accommodation establishments, car-hire companies and more.

3. Tourism Grading Council of South Africa (TGCSA)
TGCSA is responsible for the star grading system to ensure improvement and high standards across all areas of the tourism industry. If you wish to get your B&B graded, you would have to contact the TGCSA.

Related: Why You Shouldn’t Quit Your Job To Start A Business

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Start-up Industry Specific

How Do I Start A Transport Or Logistics Business?

An all in one guide to starting a transport and logistics business.

Entrepreneur

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Thinking about starting a transport business?

Forecasts indicate that the demand for freight transport will grow in South Africa by between 200% and 250% over the 15 to 20 years.

Your Free Cheat Sheet: Transport and Logistics Business Cheat Sheet

Some corridors, (high volume transport routes that connect major centres), such as the corridors between Gauteng and Cape Town (which amount to 50% of all corridor transport) will increase even faster.

The scope in the transport and logistics industry is varied – from a one-man show using a small truck to transport goods and offer services, to a fleet of transport vehicles which travel the length and breadth of South Africa’s roads.

Road transportation includes commuter transport from taxis to bus transportation.

It can be a tough industry and there are many threats facing transport businesses but if you get it right, you can build a successful business.

What is covered in this guide:

  1. How to start your transport and logistics business
  2. How to get funding for your transport business
  3. What are the costs involved
  4. Finding customers and getting transport contracts
  5. Getting onto suppliers lists
  6. Buying trucks and employing drivers
  7. What are the regulations and risks
  8. Where to find guidance to start your business.

Ready to get going? Click the arrow button to learn how to start your own transport business.

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