The recent recession through which South Africa has passed and the growing feeling that the JSE Securities Exchange after a five year bull run could be heading for a correction are two of the factors which have led to a sharp increase in the popularity of property as an investment and a marked increase in the number of buy-to-let investors in many of the Cape Peninsula suburbs.
This was said last week by John Weston, franchisee for the Rawson Property Group’s Bergvliet franchise. Weston has been one of the most consistently successful Rawson agents in the group and at the end of their 2013 awards ceremony he took five awards and was ranked fifth nationally in competition with the group’s ± 1,000 agents.
“This year,” said Weston, “we have, in our franchise, seen a 35% increase in the number of buy-to-let investors. Today they comprise roughly 18% of our clientele.”
Quoting a recent Financial Mail article, Weston said that property is the now the second most popular asset class with high net worth individuals, running just behind equities. Equities now worldwide absorbs 26% of high net worth individuals’ resources, but an impressive 20% is invested in property.
“Analyzing what my clients are telling me,” said Weston, “it becomes clear that the reasons for property’s high ranking as an asset class today are, firstly, that here in South Africa it gives a satisfactory return (on average between 7,5% and 8% on residential property, with a 9% annual capital appreciation). Secondly, property has proved to be one of the most stable of investment channels, despite the recent recession. Thirdly, property gives regularly monthly returns, whereas many shares and financial markets only pay out once or twice a year.”
In addition to these factors, said Weston, property is one of the few assets that can be geared, usually through a bank mortgage. This aspect, he said, doubles or trebles the investor’s return because these are based on the total value of the property not on the relatively small deposit and bond repayments for which the investor is responsible.
“This obvious fact,” said Weston, “is often overlooked by analysts, but, of course, it adds a completely new dimension to property investment.”
Many of those investors to whom he sells, said Weston, add regularly to their portfolios, thereby avoiding high tax payments because the returns or profits are reinvested in new properties.
This, said Weston, is very much in line with the advice regularly put out by Bill Rawson, Chairman of the Rawson Property Group, who has on several occasions advocated that serious investors should be adding one property, preferably a sectional title unit, to their portfolio each year.
The Zimbabwe property scenario, added Weston, gives further evidence for the wisdom of property as a long term investment.
“In Zimbabwe we have an economy operating on zero or in many cases negative growth. Furthermore almost no development has taken place there over the last two decades. One asset class that has flourished, however, has been property: CBD office rentals in Harare have been rising by almost astronomical figures year-by-year and even residential property continues to appreciate despite an almost total lack of bond finance, the payments generally being US dollars and in cash.”
This scenario, said Weston, has been evident in a great many African countries, including those that have been through revolutions.
“Even in the most unstable countries,” he said, “if the investor has the patience to ride out the unruly period, it has been shown again and again that property will emerge from the troubles as valuable and as sought after as before.”