Property is often included in an investment portfolio as it has a low correlation with other assets like bonds and equities and thus diversifies the risk in a portfolio.
Regarded as having higher risk and return than bonds but lower than equities, property is favoured during times of economic and political uncertainty because it is a real, tangible asset, says Sandra Gordon, senior research and market analyst for Pam Golding Properties.
“Not only does it offer potential capital appreciation but also generates a steady income stream, which is particularly welcome during uncertain times”.
“Current developments internationally raise questions about the outlook for global growth, trade, inflation and interest rates and, of course, safe haven currencies. These uncertainties are reinforcing perceptions of property’s role as a safe haven”.
“An extreme example of property as a safe haven is the surge in wealthy foreigners (notably from Silicon Valley) buying self-sufficient bolt-holes in New Zealand. While the country’s remoteness was previously seen as a weakness, in the current global environment of uncertainty its relative isolation is now perceived as a major strength.”
Here in South Africa the Cabinet reshuffle and downgrade to junk status is causing significant upheaval which may impact on the local property market. Will foreigners still buy, will locals delay purchasing decisions and will interest rates rise?
Says Gordon: “Our housing market has been slowing for several years as it faces economic headwinds of subdued growth, rising inflation and interest rates – prompting some analysts to caution that property is not a good investment because, once adjusted for inflation, real prices are falling from year-earlier levels”.
“But this is an over-simplification – as the regional housing markets have shown extremely divergent performances in recent years. This highlights the need to research before deciding what segment of housing market to invest in.”
According to Pam Golding Properties’ strategic partner, Savills, three metrics have the greatest influence on housing markets: demographics, affluence and availability of land or housing.
When all three factors are positive, growth in house prices will exceed the inflation rate but, in the absence of one or more of these variables, markets are likely to stall or even decline.
Adds Gordon: “South Africa has a young population, with two-thirds not yet 34 years – which is the average age of a first-time buyer. This means this is going to be a major growth market over the next decade. The raising of the level at which transfer duty is payable to R900 000 means that housing is more affordable for the first time buyer”.
“When there is economic growth and job creation, there is generally a vibrant housing market. As populations urbanize, so cities are becoming increasingly independent of their countries. So if you wish to find a promising housing market, you need to identify a vibrant growth node, for example, KZN’s burgeoning North Coast Corridor.”
She says even though the country’s economy has been extremely subdued for several years now, there are several growth nodes in which activity remains particularly buoyant. Major metro markets are the dominant housing markets – with coastal markets currently leading the way.
Concludes Gordon: “While people from across SA are relocating to the Western Cape – attracted by the lifestyle offering and well run province, it would not be surprising if Cape Town becomes saturated and Durban, including its easily accessible coastal areas, becomes preferable because of its proximity to Gauteng and great lifestyle offerings, space and relative lack of congestion.”
Adds Carol Reynolds, Pam Golding Properties area principal for Durban Coastal: “It’s no coincidence that Durban has been declared by The Mercer 2017 Quality of Living Survey best city in South Africa in terms of lifestyle offering for the third consecutive year. This is evidenced by the fact that we continue to see strong demand from buyers in areas like Johannesburg who are seeking to relocate, but who do not wish to be too far away from the Gauteng business hub”.
“KZN offers an easy commute to Johannesburg and a far better, year-round climate than the Western Cape. Schools are also excellent and facilities are easily accessible. Notably, for the first time since I have been in the property industry, we are seeing Cape Town developers looking for opportunities in KZN because the northern coastal belt has become so popular and sought after among home buyers.”