Property - a safe haven in turbulent times

This according to Elwyn Schenk, Pam Golding Properties area principal in Umhlanga and Umdloti.

“Investors have faced a constant stream of bad news regarding developed countries, in particular the debt crisis in Europe and the US.   As a result many investment fund managers have scaled back their exposure in the European and US markets, looking with more favourable eyes on investment in emerging economies such as BRICS (Brazil, Russia, India, China and recent new member, South Africa), “ says Schenk.

He says some market commentators seem to feel that the negative response to the global economic scenario has been overdone and that ‘pessimism has become tiresome, so optimism is gaining a foothold’. While recently there has been some degree of market correction, the uncertainty and the challenges remain.

“Several facts support a new attitude - growth in emerging market economies is robust, and recovery seems to be on a self-sustaining path in these regions. Fortunately South Africa, along with many emerging countries, for varying reasons, has to date suffered relatively mild shockwaves from the global contagion. Ironically, rating agency Moody’s rates South Africa at A3 (stable) which is well above several Western European countries. However as a small player in the global village, our stock market and currency are particularly vulnerable to volatility offshore,” he says.

Schenk says all of this is cold comfort for the investor whose sole objectives are protection of his/her capital base and ensuring a regular source of real (inflation proof) income. “While in no way detracting from the need for any portfolio to be spread across asset classes and maybe even countries, in my view it is only property which, if carefully selected, can provide an appreciating asset with an inflation proof income in perpetuity.

“The flight to gold has underscored investors’ caution in regard to equities and bonds, and signals an almost instinctive return to hard assets in times of trouble. Gold of course has its limitations as an investment medium:  it needs to be stored, at increasing cost as many European bank vaults are full, and more importantly does not provide an income, and as a result the holder is entirely dependent on capital growth of the asset which in turn relies on bad economic news - itself unlikely to last forever. Thus options for the conservative investor are few.   Equities are experiencing high volatility, as are currencies. Investment in cash or near cash will currently not produce an inflation proof return.

“The only hard asset in my view, which ‘ticks all the boxes’ is property. FNB quoted recently that nominal house prices in South Africa have grown by 211.6 per cent from June 2000 to date despite the significant downward adjustment in price levels since the peak of the residential property boom in 2008. House prices, adjusted to take into account the impact of inflation, were 66.2 percent higher than they were 11 years earlier. One is hard pressed to think of another investment which has shown such resilience in the face of what has been described by some as the worst recession in modern history.”

Schenk says the residential property sector’s performance has been even more notable in the more upmarket areas such as the KwaZulu-Natal north coast’s Umhlanga and Umdloti. In addition to being home to exclusive, luxury homes in prime coastal locations and with unique additional attractions such as Gateway shopping centre and King Shaka International Airport/Dube TradePort, these areas are underpinned by strong nodal growth in this strategic northern corridor.

A cross-section of properties sold by Pam Golding Properties Umhlanga in the year 2000 has shown solid, and in some instances even spectacular escalation reflecting close to threefold growth over the period, which is notable by any standards. For example a three bedroom beachfront apartment situated in Umdloti was sold by PGP in February this year (2011) for R2.65 million, having been purchased six years prior to that for R1.3 million. An apartment in a gated estate in Umhlanga, which was purchased in 2000 for R340 000, recently sold for R1.5 million, reflecting a fourfold increase.

Adds Schenk: “Naturally some properties which achieved exceptionally high capital growth may have been upgraded, which would further enhance the property value. However, the fact is that not only is property a resilient and reliable asset class, even in times of adversity, but that carefully selected property in prime areas can perform solidly despite a gloomy economic backdrop.”

He says the pool of quality stock which is currently available to purchasers is decreasing as the uptake of such homes increases.  Opportunities which offer sound value for money and investment potential include a three bedroom, two bathroom apartment of 156 square metres in the luxurious 30 Degrees apartment block in Umdloti priced at R3.2 million, and a three bedroom, two bathroom, pet-friendly apartment in St Malo, also in Umdloti, priced at R1.75 million. On Umhlanga’s Marine Drive and with beach access is a sunny three bedroom unit in Pebble Grove, on the market at R3.9 million, while in the sought after Oysters development adjoining the Oyster Box Hotel upmarket apartments are selling from R3.6 million, with a one-of-a-kind penthouse priced at R18.9 million.

“For those seeking starter homes or buy-to-let investors we have just launched a new small development at Gateway, 46 On Meridian, with one bedroom apartments priced from R670 000 and two bedroom, two bathroom apartments at R980 000 - each including two parking bays and superior finishes. Initial rental yields on these units will be good and augur well for steady capital growth,” says Schenk.

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