South African Property a Buyers Market

Why Buyers Should Invest Now

An article published by the Daily Dispatch Online discusses the current trend in the property market and urges buyers that the time to invest in a fixed asset like property is about six months away, when the market finally hits rock bottom.

Many homeowners may refute this and say that it would be mad to touch property investments in a climate where house prices continue to fall. Why would anyone want to buy an asset that is steadily losing value?

Senior economic analyst at ABSA, Jacques du Toit said, “In real terms, property prices have already declined since late last year, which implies that, on average, a property owner who has bought property during the past two years is set to make no profit, or even a loss, if he sells now”.

On the back of a global economic slump, ABSA predicts real house price growth to fall by around 6% in 2008 and by another 3.3% in 2009. Du Toit anticipated that the best time to invest in property would be the second half of this year and early 2009, especially in terms of a buy-to-let perspective.

Marriott Income Specialists chief executive, Simon Pearse agreed that six months from now would be a prime time to invest in property, as prices still have to lose some momentum. “You need to buy when the interest rate is at its highest and inflation at its most. When no one wants to buy property, that is the best time to buy…and then you will make the most money,” according to Pearse.

He added that if property investors do not have cash reserves right now, they should try and convince their bank to loan them the maximum amount available under the tight conditions and purchase a bargain property. “You are not borrowing for the sake of borrowing, but buying an asset,” he urged, and the asset value will begin to rise just as interest rates start to fall.

Effectively, the situation created is one where the investor’s bond payments would decrease on an asset that continues to rise in value. When is the right time to leave the property market? The simple answer would be when interest rates start to rise again or when everyone at the local pub informs you what a great investment property is, said Pearse.

Taking this advice into account, Marriott developed the first commercial property fund for private investors in South Africa in 1997, when the property market was at its lowest ebb in the past twenty years. This fund recorded a 200% return on investment between 1997 and 2005, when the property boom began to taper off.

According to Pearse, property will always be a sound long-term investment because property values and rental income are linked to inflation, which means that prices continue to rise over time. During the first part of this year, rentals in East London increased by 50%, this according to the Trafalgar National Rental Index.

Du Toit warns that investors in the property market should not anticipate any positive real capital growth in the next 18 to 24 months. “In view of property being medium to longer-term investment – five years and longer – property investors should look through the current downward cycle and focus on income returns, with a view of achieving positive real capital appreciation from 2010,” he said.

The information in this article is courtesy of Roux van Zyl (“Buyers can benefit from property’s fall”, Daily Dispatch Online, 16 July 2008).

Visit www.sahometraders.co.za if you would like to buy or sell property in South Africa.