The Risks & Rewards of Realty
Chairman of Seeff Property Group SAMUEL SEEFF discusses why South African property remains a good investment, despite the sluggish economy
South African property ranks among the best in the world when it comes to capital growth over the last twenty years. That makes it a pretty good investment on the whole but, as with any investment, there are rules and exceptions.
Generally, property funds have delivered
¿ to bricks and mortar here. Many factors come into play when it comes to investing in property. Areas differ greatly and, even within an area, there can be differences in the rate at which value accumulates.
There are also different property classes. For example, residential and commercial. Within that, it would depend on what and where you want to invest in. Urban residential value growth and rental returns could, for example, differ from country residential and even coastal residential and so on.
People tend to invest in property for varying reasons. When it comes to
¿ obviously a lot more about securing the roof over your head, whereas you tend to be more concerned with investment returns if you invest in a rental property.
You will therefore be concerned with property values and capital growth and will want to look at various areas and rates of growth. If you are looking to invest in holiday or long-term rentals, then you will want to do so in an area with strong demand for such. Without good demand, you are unlikely to achieve good returns.
South African property has a history of resilience, having been through a number of down cycles and always bouncing back quite strongly in general. Bear in mind though, that the performance of the property market is directly linked to the economy and follows the same cycles. When the economy dips as was seen in post 2007/2008, a dip in the property market follows.
Property value escalation or average price growth is measured by a number of indices such as those of FNB and ABSA. The growth is measured in nominal and real price terms, nominal being the gross rate and the real
À measure of growth.
At the height of the economic boom of 2003-2006, property prices escalated by up to 20 per cent year-on-year in the major metros. Following the 2007/2008 slump, this slowed to almost no growth, but as soon as the economy improved (from around 2012 onwards) prices started picking up again with most areas clocking up 12-20 per cent growth.
Property value escalated notably faster in the Cape with the FNB Property Barometer putting it at 12% on average by mid-2016, growing twice as fast as that of Johannesburg and three times as fast as other regions.
But this has since slowed in view of the prevailing economic and political climate.
Buying at the right time, at the right price and in the right area is a prerequisite for making a good investment. That said, people buy for different reasons and in different areas. Strong investment destinations tend to have one factor in common: an excellent location. For the Cape, this will be the coastal
This property in Fresnaye, one of Cape Town’s most affluent suburbs, sold for R75 million.