South African residential property increasingly seen as a safe haven asset

Something that impressed him greatly on his recent return from a trip to the UK, says Bill Rawson, Chairman of the Rawson Property Group, was the way in which investors in recent months have swung back to property, seeing it as a safe haven in unstable economic times.

“When I discussed these trends with people in South Africa,” said Rawson, “the question I am often asked is, ‘Do the figures and returns justify this resurgence in property assets?’”His reply, said Rawson, is always ‘yes’.

Between the year 2000 and today the average ‘nominal’ house price in South Africa increased from ± R300,000 to ± R1,200,000 — a 400% rise.  During the same period South Africa’s inflation rate eroded the value of money by approximately 208%, i.e. R1 million in 2000 is now worth R2,080,000. Property has, therefore, been an asset class that has kept well ahead of inflation.

“We calculate that the average rental return (after expenses have been deducted) on residential property rose from around 4,5% in 2000 to 6,8% in 2014 – and the figure is still rising.”

Rawson added that while there are obviously many more spectacular investment avenues open to those able to afford them, particularly certain JSE stocks which have increased in value by far more than property, the great advantage of investing in property is that it is fairly straight forward.

“The big bonus conferred by property is that it is there to see and inspect:  there are few dubious annual accounts to be analysed for undisclosed weaknesses.  Furthermore, property, unlike shares, can be geared:  much of the profit made is achieved largely on the banks or other some other financier’s loan.”

With the current weakness of the rand, the huge debts run up by local authorities, the inability to reduce the country’s current account deficit, the strong possibility that the international rating agencies will downgrade South Africa in the near future and the banks’ reluctance to advance bonds to any possibly risky buyer, said Rawson, property is likely to remain ‘the new currency’ favoured by all those averse to or unqualified in dealing with the financial markets.

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