Property & Wealth

Real estate living up to its reputation

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The old, widely held adage that immovable property, as a primary investment, is a safe haven for your savings, especially in tough times, remains firmly in place.

In fact, this wisdom presently seems to be even more relevant. Real estate is holding on to its reputation while, very unusually, the gold market as the usual home for flight capital, has been driven down along with the other primary resources indexes. Despite the huge worldwide volatility, gold and other precious metals seem to remain bogged down in bear territory.

Real estate, it seems, might also prove to be your most reliable alternative investment (i.e. for spare cash) in turbulent and uncertain times. The most common form of this kind of investment is in the ‘buy to let’ class of asset-investment, generating a rental income from a tenant or tenants.

It should, however, not be regarded as risk-free and the investor must be cautious in the selection of both the property to invest in and the tenants taken in.

Several factors play a role in the management of these kinds of risks and the viability of the investment made.

In particular, you should ask yourself:

  • What is the level - and cost - of the intended borrowing from the bank, which will ultimately impact on your rate of return, especially with an eye on a market which is presently anticipating interest rates to rise;
  • What are the anticipated maintenance cost associated with the property or properties considered for purchase; and
  • What is the calibre of each of your tenant’s profile? Is he or she a reliable payer, will they take care of your asset and most importantly, are they in secure employment or have access to secure income despite the present stormy economic weather?

Despite the general economic anxiety which is prevailing right now, there are many positive reports regarding the health of the real estate market in South Africa.

For instance, one of the large national estate agencies, Remax, recently reported a decline in the number of so-called distressed properties on the market. The implication is that consumers appear to be managing their debt better. 

And, notwithstanding the tough affordability criteria applied by local banks, OOBA, South Africa's largest bond originator, reported that the Average Purchase Price (APP) in May showed another year-on-year double-digit increase of 13.3% to a mean unit price of R1 072 615.

The Average Purchase Price for First-Time Home Buyers also shot up by 8.6% to a mean unit price of R796 261. 

In addition, another indicator of the buoyancy of the national market, OOBA, reports that its home loan approval rate remains extremely high at 76% as they are succeeding with over three-quarters of the loans they apply for in the present market.

At the end of the day your decision to invest in property should be based on your own careful research and detailed market analysis and not on emotion. Make sure you diligently do your homework, consult with relevant financial and property professionals and then weigh up all the pros and cons before making the final decision.

by Eve van Basten

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