RESIDENTIAL PROPERTY IS ALWAYS A GOOD INVESTMENT
By Coert Coetzee
I think you’ll all agree with me that residential property is a good investment. The best proof of this is your own private home. According to surveys carried out by the banks, people live in a house for an average of seven years before selling it to buy another one. As far as I know, no-one has ever received less after seven years than what they paid in the first place.
According to ABSA, the average growth on residential property over the past 20 years has been in the region of 13% per annum. It’s been a lot higher over the last four years, but let’s stick to 13% and do a little calculation. A house that cost R360,000 seven years ago would sell for R846,000 today. At first glance that seems to be a good property investment, but is it a good investment to buy houses and rent them out?
I say that it is, but many investment managers won’t agree that it is good practice to buy and let, especially not in the current market. Their argument is that rentals are low and prices are high. If you pay R846,000 for a house and only receive R5,000 rental per month, you get an annual return of 7%. There are plenty of other investment instruments that will give you more. But what these investment managers lose sight of is that residential property is not about rental, but rather about capital growth. When I do the calculation as I did in the previous paragraph, everyone agrees that it was a good investment.
Coert Coetzee is the Founder of the TREOC Group consisting out of different companies and trusts. The TREOC Group provides services in investment education, risk management, financing, legal services, accounting, property management etc. Coert is an experienced Business Owner and Property Investor and shares his experience and secrets of many years.
FRACTIONAL OWNERSHIP IN SOUTH AFRICA
Although the concept of joint ownership has been with us for a long time, Fractional ownership of real estate in SA is a relatively new concept that is around for about 3 years. In South Africa the concept of syndication is very well known and the syndication of leisure properties, such as game farms has been structured for years,mainly by friends and family.
The complication of such syndications is that no formal exit method exists and when a member of the syndication wants to exit the structure, problems can arise, with issues of the value of the syndication and the criteria for who may enter as the substitute member having to be resolved. Another problem area is the issue of management of the syndication, that may become a real burden on some of the members.
Fractional ownership as a suitable ownership structure may become one of the most frequently used methods of acquiring and owning lifestyle holiday properties in South Africa, bases on the following underlying factors:
The increase in secondary luxury properties has rocketed over the past few years.
These secondary homes are now in most instances worth more than primary residences.
Full ownership of such a valuable but underutilized asset could mean an overly “leisure” weighted investment structure.
The rise in these property prices did not go hand in hand with an equal rise in the spending power of the owners.
High levels of “speculative” investors in lifestyle resorts who now own vacant land and very little secondary demand.
Fractional ownership is a method of creating lower barriers of entry into the leisure market.
The concept balances use with cost.
RISING INTEREST RATES TOP THREAT TO PROPERTY
A recent survey carried out by an online property listing site, identified rising interest rates and unsustainable price rises are the two biggest threats to the South African property market in 2008.
Johan Strydom, general manager of propertygenie.co.za, said on Monday that three main factors seem to worry consumers when it came to their perceptions of the biggest threat to house prices.
"Our survey showed that 37% of people said that higher interest rates are the major threat to property prices right now, while 23% said unsustainable prices rises posed the biggest threat. The National Credit Act (NCA) was voted the third-largest risk factor with 21% of the votes," he said. "Interestingly, despite all the headline-grabbing leadership concerns, only 16% of people thought political uncertainty was the biggest risk factor, followed by 2% that ranked the subprime crisis as the biggest problem."
"Rate hikes are clearly having an impact though," Strydom said. "Fifteen percent of those surveyed said they were cutting back on minor luxuries like eating out and buying magazines, while 16% declared they would cut back on major luxuries like holidays to compensate for the higher costs of servicing home loan debt." Nearly 17% of respondents said they would be selling their homes, but when asked how they were dealing with the impact of higher bond repayments from interest rate hikes, 41% said that that it had made no impact on them.
INVEST IN PROPERTY
According to Bestselling author of Real Estate Riches there is ample opportunity to generate wealth through property in our South Africa's current economic climate. This is the opinion of Dolf de Roos during a recent presentation made to 800 guests hosted by the Private Property Group at Montecasino.
De Roos was in South Africa to give property investment seminars where he shared his successes and investment strategies with delegates.
Private Property sponsored the trip trip of De Roos and hosted the seminar as part of a service to their valued clients and business partners.
Dolf de Roos is an international speaker, educator, investor and author of 8 bestselling property books, including the New York Times bestseller Real Estate Riches.