Is now the time to consider property investments?

Market experts have warned that the global and local economic prospects are bleak, indeed, and as a result, many asset classes will struggle to beat inflation over the next few years by much more than a percent or two.     

So where do investors turn for better returns without higher risk? "A direct investment in property should certainly be one of the options South African property investors consider at this time of unprecedented volatility and uncertainty," says Dr Koos du Toit, CEO of P3 Investment Group. "If investors know how to judge a good property investment, by using a tried-and-tested system that has been used by the world's wealthiest for hundreds of years, then direct property investment is certainly an alternative to consider now."  

Dr du Toit notes that there are a number of factors that indicate that now is a good time to be looking at direct property investments.

"Firstly, property investment is attractively priced right now. This is due to two factors: property prices have corrected following the boom times experienced around 2006, when property values were inflated beyond sustainable levels," he says. "Sellers are now pricing their properties far more realistically and this is undoubtedly still a buyer's market. Secondly, interest rates are at historic lows, which makes property investment through gearing or leverage - essentially acquiring an investment asset with finance - particularly attractive."

Dr du Toit adds that, thirdly, the economic crisis has brought property development in South Africa to a near stand-still and very little new housing stock have come onto the market over the past few years. "This has provided an opportunity for the over-supply in some areas to be absorbed by the market. In fact, in certain areas, estate agents are reporting shortages for the first time in years. The lack of new housing stock coming onto the market, in a country with a massive housing backlog, forebodes a significant housing shortage in the near future as the population continues to grow and migration to the cities continue apace. And a shortage of properties can certainly be expected to result in improved capital growth rates in the near future."

The fourth factor that ensures direct property investment is currently an option worth serious consideration is that fact that so few South Africans are able to obtain a bond to purchase a property, despite the more realistic property prices and the low interest rates. "This is largely due to the high level of indebtedness among South Africans and the deposit requirements imposed by the banks," explains Dr du Toit. "This damper on home-buying activity, along with the lack of housing stock coming onto the market, has certainly increased the demand for rental properties, as potential homeowners have little choice but to rent until they have saved up a deposit and improved their financial positions, by which time they are likely to face a challenge in terms of a shortage of housing stock."

So, investors are looking at a market in which the assets are well-priced; the investment can be geared at historically low interest rates; the outlook for solid capital growth is underpinned by strong population growth and urbanisation rates; and rental demand can be expected to remain strong for some time, given the time lag of two to five years before new housing developments are completed.

"This is certainly a favourable confluence of circumstances for smart investors and, indeed, members of the P3 Investment Group have been very active lately, having recognised that this is a great opportunity to acquire an investment property at a good price, finance the acquisition with a mortgage bond at a low interest rate, tenant the property with tenants hand-picked from an ever-growing pool of tenants vying for a limited supply rental accommodation and looking forward to stronger capital growth rates in the medium term as demand exceeds supply," comments Dr du Toit. "There are certainly some sound investment opportunities available, and, as just one example, a P3 Investment Group member recently acquired an investment property for R389 000, with a current monthly rental income of R4 200. This rental income will grow year after year, providing a hedge against inflation, while the property will also produce capital growth over time."  

Direct property investment, as with any other investment, does entail risks, but if investors follow a tried-and-tested system, the risks can be mitigated and managed in such a way that direct property investment becomes one of the lowest risk investments available today.

"Building and managing a portfolio of property assets requires no qualifications or experience, very little time and effort, and little or no capital or monthly investment," concludes Dr du Toit. "With the right system - which entails selecting the right properties in the right areas and managing the portfolio and the associated risks professionally - ordinary South African investors can take advantage of the current conditions, building up a manageable but very profitable property portfolio that will produce an inflation-linked income for life and - as an added bonus - also generate capital growth over time."

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