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

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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.

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