By - Harry Meyburgh, Director at Etchells & Young

Property as an Investment

A commonly quoted international statistic is that 90% of the world’s US Dollar Millionaires became rich by investing in Property.  Or certainly that property is or was at some point a significant part of their investment portfolio and strategy.  Do you know any really rich people who do not own significant property portfolios?  Many people who become really rich start off their wealth creation by investing in property, because it can be quite easy and seems the logical place to start.  There is also a certain prestige and respect associated with owning a property portfolio. 

If you have a good credit record and an income to support your application, you could qualify for a home loan and can thus use the bank’s money to fund most of your investment.  Of course you will need to have the deposit to put down and have some funds in reserve to cover unexpected costs down the line.  Good luck applying to the bank for a loan to buy shares on the JSE or a few Bitcoins…

Property investment is not risk free and many criteria have to be considered before buying an investment property, but it is safe as houses to say that property can be an excellent long-term investment and is often the best way to start off on the road to becoming an investor.  This can then serve as a good platform as you widen your investment horizon.

What do the Stats say?

FNB’s house price index does not paint a pretty picture when we look back on the growth over the last few years as we have had a negative real growth over the last 3 years.  This is directly due to the poor economic climate largely driven by the unstable political situation in South Africa during this time.  This is good news, because in almost all property market cycles going back in history, after a few years of poor performance, the market bounces back and this is followed by the 7 good years. 

So, are things about to change and improve now?  Cyril Ramaphosa has been elected as president of the ANC in what seems to have been a smooth and well run elective conference.  Many economists are now a lot more optimistic about the economic future of South Africa and many prominent property experts also feel the property market, especially in Gauteng, will improve as from 2018.  There seems to be a quiet confidence – the Ramaphosa effect – about South Africa and we can have hope for our future again, so perhaps now is the time to be optimistic.

When to invest?

When is the best time to start investing in property?  The sooner, the better!  Especially in the light of the optimistic outlook for 2018.  To make it even better we are still in a buyers’ market, so buyers with a real intent to purchase are in a strong position to negotiate with sellers who desperately want to sell and have had their properties on the market for months.  There is still an oversupply of property on the market in Gauteng and not enough real buyers scooping up the deals, but probably not for too much longer. 

So, if you are ready to buy your first home, think about this.  Plan it as if you are buying the property to rent it out.  Take into account the rental demand in the area or complex, the type of property in demand by tenants and the associated costs such as rates & taxes and levies.  Most banks have favourable conditions for first time buyers, so use this to your advantage, buy your first home with the goal that you will live there for a year or two, but the plan will then be to move out, rent it out and buy another home to move into. 

Then again in a year or two, be prepared to look for another new home and rent this one out, and repeat.  Yes, by doing this you have just entered the world of property investment and will hopefully be well on your way to creating significant wealth for yourself.

With the likely strengthening of the property market, prices will start to increase again.  This means that the longer you wait the more difficult it will be to be able to afford to buy a property later in the year or next.  This is good news for property investors as it will also cause the demand for rental properties to increase.  So win, win, win for property investors who took advantage of the current buyers’ market.  Your property assets increase in value and the demand for your rental properties also increase…..

What to buy?

Even though we are more optimistic about South Africa and the Ramaphosa effect is still being felt, this is South Africa and Jo’burg – so the no.1 consideration must be safety and security.  If you are buying something with a future tenant in mind, think like a tenant.  And you and your family may well live there for a year or two if you are buying with the aim of becoming an investor.  Sectional title complexes usually offer better security and have the benefit of being less expensive than larger free standing homes - both to buy and maintain.  This also means you start off with a more manageable capital outlay.

There is also a strong move towards homes and complexes that are more water and energy efficient.  The crippling drought in the Western Cape is a dire reminder of this and skyrocketing costs of electricity is placing a huge focus on the benefits of alternate and cheaper sources of energy and / or reduced energy costs.

Tenants will also always be drawn to properties and complexes that offer a good selection of convenient facilities and amenities such a swimming pools, play areas and fitness facilities like gyms or jogging/cycling tracks.

Another consideration will always be to choose a complex or home that is well located in a popular suburb (the old saying location, location) and esp. when schools, transport routes, shopping centres and business hubs are closed by and within easy reach.

Did you know?

The most expensive house ever sold (and on record) in South Africa was a R290 Million three-storey house with seven bedrooms in Bantry Bay, Cape Town – sold  in June 2016. Wow!!

Any questions, queries or suggestions – please feel free to email me: harry@etchellsandyoung.co.za