Johannesburg CBD. Image by Austin Evan

Buying property is an understandably daunting task: it usually entails large sums of money, is considered a medium to long term investment, and will always be subject to forces related to the well-being of the national macro economy, international investment, and local and foreign politics. The idiom, “safe as houses”, is however a truism for a reason: property investment is one of the best and most stable assets one can hold.

Property increases its nominal value (money value), and often increases its real value (the actual value of the property) over time. If the real value of your property increases, it will be worth more than when you originally bought it. In this case, your investment has earned you returns. If the asset is a property on which you live and have a house, the advantage to you is double fold. This is to say that not only do you own the place where you live, and therefore have an asset, but that the asset has appreciated over time, becoming worth more and increasing your personal wealth. If you are thinking of investing, perhaps check out the property for sale in Rustenburg: despite the mining unrest, this town remains an unexplored and hidden gem.

The advantage to buying property over renting is cited as a typical reason why, if you are found to be credit worthy by a financing institution, purchasing the asset is a better option to renting. Renting can be compared to the purchasing of a service or commodity; but the “product” being bought is space and time, or perhaps more accurately, time in a specific space. When buying a house, however, you are purchasing an asset over time, and when it is paid for, you own it.

If your interest in property extends beyond the practical need to house yourself and your family into the realms of capital investment, the precedent set over the past decade would indicate that property investment is a lucrative market. The annual rate of return for investment in the South African market over the past ten years (on average) has been around the 23% mark. Equity investment was 5-6% below this, and the purchasing of bonds only returned 10% p.a. on capital amounts. Even with the double dip recession and the slowing of local markets, taken over the long term, property should still outperform the other two investment options.

The advantages of investing in property (for either individual, practical purposes or for investment portfolio strengthening) are manifold and should act to mitigate the nerves created by the prospect of committing large sums of money to a single asset. Another factor that acts against prospective buyers from entering into the property market is the difficulty experienced in obtaining financing at reasonable interest rates. Whereas the nervousness and buyer’s jitters can be adequately quelled by the rational analysis of the facts of the market and an examination of the benefits of owning property, the problems in procuring funds is less easily dealt with.

Local banks are, especially when compared to their foreign counterparts, considered conservative in their lending practices. The advantage of this, in terms of markets, is that it acts to prevent the creation of a price bubble which artificially inflates the prices in the market. The disadvantage is that it prevents credit worthy prospective clients from legitimately entering into the market and owning their own property. One last negative effect of conservative lending practices is that it depresses prices, creating a buyer’s market. This last notion will be briefly addressed in the following article…