Property a Resilient Investment Class

Property the Safest Bet

While global markets and investors literally shudder in the aftermath of the collapse of Lehman Brothers and AIG, South African property investors are somewhat smug in comparison.

Paul Hansen of Stanlib, a major asset management company, noted that the JSE was about 25% off its high and close to lows seen in January as a result of the chaos that ensued on world markets following the crisis on Wall Street.

In an assessment on the impact the crisis will have on South African investors, Hansen said, “The JSE looks good value all-round, but if world markets continue to fall, the JSE may do likewise. With the MSCI World Index down 27% (in dollars) at 2005 levels and the JSE All Share Index down 25%, we don’t think this is a time to be selling, even though there may be more downside to come”.

However, amid the falling share prices, there is good news for some investors. Hansen said, “Remember that over the past few months in SA, three of four asset classes have done well (listed property, bond and cash)”. Investors in publicly listed property companies aren’t the only ones who are breathing a deep sigh of relief.

The collective opinion seems to be that investing in brick and mortar at least gives you something tangible after the crash, while making a wrong move with equities or even cash in a bank with unsecured deposits may just give you grey hair and plenty of useless paper for your troubles.

The recent property statistics released by Lightstone Risk Management go a long way towards comforting investors, as the snapshot goes back to 2000 and indicates that South African residential property prices, unlike shares, are all in positive terrain. Granted, they are falling and likely to drop further, but they aren’t likely to plunge dramatically like shares do at times, which is an excellent reason to include residential bricks and mortar in a personal investment portfolio.

In general, property prices tend to go up at a fairly sedate pace and wind down slowly, more or less in line with interest rates. It’s not likely that you’ll wake up one morning to find your property worth 25% less than it was the day before, which is something that could easily happen with equities.

The stark contrast in performance between residential property and shares in general this week has highlighted the volatility of the stock market. Bill Rawson, founder of Rawson Properties once said in an interview that he believed buy-to-lets were the answer for people looking for a steady stream of income. He pointed out that even blue chip companies on the stock market cannot be taken for granted when you are dealing with important financial requirements, as even the big companies come and go.

Pieter de W Louw has released a new book for the P3 Investment Group called Property – Your key to wealth. In it he says that he couldn’t believe his own eyes when he read the 2005 Financial Planning Handbook of South Africa to find that residential property is portrayed as ‘high risk’ investment class.

“What has gone wrong in this industry? Are the learned professionals of the financial industry so biased that they have completely lost their minds? I am honestly sad when I have to say that you should be extremely cautious when taking investment advice from just anyone who boasts with the ‘highest qualification in financial planning’ (CFP) behind their name. Why do I think that the risk is low? The answer is common sense. Show me an entry level property in South Africa that has declined in value over the past decade,” he argues.

Reinforcing this view that property is a low risk investment with high returns are some recent statistics from ABSA, which indicate that property beat all other asset classes over 5, 10, 15 and 20 years – and is almost as ‘low risk’ as cash. However, this doesn’t mean that it’s all plain sailing for property investors. Whatever the case, when it comes to making money in property, the reality is that you can’t win if you aren’t in the game and playing the game also has its ups and downs. At the end of the day, property does appear to be a resilient investment class in comparison to other types at the moment.

The information in this article is courtesy of Jackie Cameron (“Property: the safest investment bet”, Realestateweb, 19 September 2008).

Property for sale in South Africa.