‘A good time to in­vest in res­i­den­tial as­sets’

Low prices and in­ter­est rates, a turn in the mar­ket and gen­eral eco­nomic con­di­tions favour buy-to-rent prop­erty

Weekend Argus (Saturday Edition) - - PROPERTY -

NOW IS a good time to start build­ing a buy-to-let prop­erty port­fo­lio, or to add to one, says Bill Raw­son, chair­man of Raw­son Prop­er­ties.

“The first rea­son for this is the highly sat­is­fac­tory over­all per­for mance of prop­erty in South Africa in re­cent years. The sec­ond is the favourable con­di­tions for prop­erty in­vest­ment and the third is the rea­son­ably bullish prospects for the South African econ­omy as a whole,” said Raw­son.

South Africa has, in the long term, proved to be a good place to in­vest in res­i­den­tial as­sets. Quot­ing The Econ­o­mist mag­a­zine’s re­cently pub­lished Global House Price In­dex, Raw­son says its anal­y­sis showed that from 1997 to 2010 South African home prices rose by 417 per­cent – more than dou­ble the per­cent­age in­crease in any of the 22 coun­tries sur­veyed. The near­est ri­vals were Aus­tralia, with a 197 per­cent in­crease, and Swe­den, with 159 per­cent.

These fig­ures have been cor­rob­o­rated by those of an Absa sur­vey that showed a 300 per- cent house-price rise in the last 10 years. Raw­son cited sev­eral prop­erty ap­pre­ci­a­tion per­for­mances from his own ex­pe­ri­ence.

“The build­ing that was known as the Wester­ford Ho­tel in Rondebosch could have been bought in 1973 for R285 000. To­day it is worth R15 mil­lion. Four cot­tages in Harfield Road that were bought for R24 000 in 1972 would now be worth R4m and could be pro­duc­ing a monthly rental in­come of R24 000. A Bish­op­scourt home put on the mar­ket in 1978 for R35 000 is to­day worth R12m.”

Raw­son said in­vest­ing in prop­erty now makes par­tic­u­larly good sense be­cause the mar­ket, al­though turn­ing, has not yet re­cov­ered and any­one in­vest­ing now will be do­ing so at the start of the up­turn.

“This up­turn is now a con­firmed fact: Absa has shown a six per­cent month-on-month in­crease for March and April and I be­lieve this will con­tinue reach­ing eight per­cent for the year.

“The cur­rent in­ter­est rate sce­nario is also favourable to in­vestors. With prime now at 10 per­cent ( low by South African stan­dards), the cost of money is at its low­est point since 1981, and al­though 52 per­cent of bond ap­pli­ca­tions are be­ing re­jected, the chances of get­ting a bond are im­prov­ing month by month, with ben­e­fi­cial ef­fects on the mar­ket.”

Look­ing at South Africa’s bank­ing in­dus­try, Raw­son said South Africa had been one of six coun­tries praised for sur-viv­ing the re­ces­sion bet­ter than most.

“Like oth­ers,” said Raw­son, “I am slightly concerned that the state has been spend­ing fast, par­tic­u­larly in re­la­tion to the World Cup, and the bud­get deficit is now close to seven per­cent. How­ever, so long as the govern­ment sticks to its tried-and-tested con­ser­va­tive debt-lim­it­ing fis­cal poli­cies which have worked so well to date, we can look for­ward to eco­nomic con­di­tions in which prop­erty val­ues will in­crease steadily.

“In­creased in­fla­tion, cou­pled to the in­evitable con­se­quence of in­creased in­ter­est rates, al­ways leads also to an in­crease in prop­erty val­ues. South Africa could feel the im­pact of the eu­ro­zone fi­nan­cial dif­fi­cul­ties. As Europe is a ma­jor trad­ing part­ner, these will ob­vi­ously im­pact heav­ily on our ex­ports. On the other hand, Euro­pean in­vestors, frus­trated by low in­ter­est rates, will start look­ing else­where. As South Africa is in­creas­ingly on the world’s radar we should be able to at­tract some of their cap­i­tal – al­ready we see signs of this.”

Stressing the sim­plic­ity of prop­erty in­vest­ment and the fact that it gives in­vestors far greater con­trol, Raw­son said prop­erty of­fers a safer haven than ei­ther the volatile JSE or the many in­vest­ment/fi­nan­cial/in­surance chan­nels be­ing touted daily.

“Al­though other in­vest­ment chan­nels should never be ne­glected and ev­ery care should be taken not to stretch your­self be­yond rea­son­able lim­its, a pol­icy of buy­ing at least one in­vest­ment prop­erty a year has paid off hand­somely for dozens of in­vestors, many of whom now own 20 or more rental in­come pro­duc­ing prop­er­ties.”

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