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Why is Property an excellent investment?

Why invest in Real Estate?


What is the most appealing thing about buying property in RSA at the moment? 

We have a“double positive” for any investor in property with low interest rates and low property prices. Home values have begun to rise in many parts of the country, and even though the average rate of growth will probably be below the rate of inflation for the next couple of years, what counts is that whichever home you want to buy already costs more than it did last year, and will cost even more next year. 


If you are an aspirant homeowner, the sooner you put your plans into action, and buy your dream home, the better.  

 What makes RSA an appealing destination to invest into fixed property :

  • South Africa is a country of sunshine and beautiful beaches, among many other attractions, a buoyant property market with impressive designs and a huge variety of architectural styles;
  • Safe purchase procedures
  • The integrity of licensed. professional estate agents;
  • Good rental possibilities and buy-to-let and excellent investment due to low interest rates and high demand for rental properties.
  • South Africa has the second strongest economy on the African continent. A growing economy focussed on developing a strong middle class provides an increasing demand for homes.
  • A strongly regulated property purchase system creates investor confidence in the market.


What do you feel is the biggest challenge for home-owners currently?

 Whichever home you want to buy already costs more than it did last year, and will cost even more next year. The longer you wait, the more difficult it is going to be to get into the property market.  Increase in property prices means that the prospective buyer has either to earn more or increase the size of his deposit to qualify for a home loan, even if interest rates stay the same. For example, if a home now priced at R500 000 were to increase in value this year by just 5%, the amount needed for a 10% deposit would rise from R50 000 to R55 000. At the same time, the size of the 90% home loan required would rise from R450 000 to R495 000 and the prospective buyer would have to earn about R1 500 more a month to qualify.” This simple example, the principles hold true right across the price spectrum.  

Why is buying property such a good investment choice?

Property allows an investor to control a valuable asset with only a small commitment. For investment purposes, an initial investment consists of a 10% deposit plus some costs. Your initial investment is much smaller in relation to the value of the asset you are purchasing. Few investments allow this kind of leverage.

Indeed, leverage can be a double edged sword. It can magnify your investment results when things go well. It can work in reverse as well. That is why a margin of safety is vital. A margin of safety is a principle typically associated with investing in securities. It can also be applied to property.

Margins of safety include the spread between your income and expenses. This is where you only settle for properties offering good, consistent cash flows. For example, a residential property in a distressed market is likely to be underpriced. Your mortgage payments are low in relation to what you’re getting for rent. Being a residential property, there are also plenty of people to rent the property to. Compare this with a commercial property with a greater return on investment but is attractive for only certain types of businesses. You have a much higher risk of vacancy loss. This simply means the property is sitting empty while you are paying the mortgage, taxes, and upkeep.

In addition to getting positive cash flow, property is a good inflation hedge over long periods of time. There will be bubbles and panics again in the future. However, real estate will always revert back to its intrinsic value. Investors are best off when they don’t get caught up in the highs and lows. Instead, only buy properties that offer positive cash flow while you wait for price appreciation to accumulate. As Warren Buffet has said, there are times in which it’s best to do nothing. Opportunities will eventually come.

 What is your advice for first-time home buyers?

The longer you wait, the more difficult it is going to be to get into the market. If you can afford to pay rent, you can afford to enter the property market. The sooner you start the better. Do your homework, look for the best priced property you can afford in the best possible area – location, location, location!

 

WHAT IS REAL ESTATE?

"I am the basis of all wealth, the heritage of the wise, the thrifty and prudent.
I am the poor man's joy and comfort, the rich man's prize, the right hand of capital, the silent partner of many thousands of successful men.
I am the solace of the widow, the comfort of old age, the cornerstone of security against misfortune and want. I am handed down to children, through generations, as a thing of greatest worth.
I am the choicest fruit of toil. Credit respects me. Yet I am humble. I stand before every man bidding him know me for what I am and possess me.
I grow and increase in value through countless days. Though I seem dormant, my worth increases, never failing never ceasing, time is my aid and population heaps up my gain. Fire and the elements I defy, for they cannot destroy me.
My possessors learn to believe in me; invariably they become envied.  While all things wither and decay, I survive. The centuries find me younger, increasing in strength.
The thriftless speak ill of me. The charlatans of finance attack me. I am trustworthy. I am sound. Unfailingly I triumph and detractors are disproved.
Minerals and oils come from me. I am producer of food, the basis for ships and factories, the foundation of banks.
Yet I am so common that thousands, unthinkingly and unknowingly, pass me by. I am real estate.

- LOU SCOTT -