‘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
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.”