Don't expect short-term gains, says property man

Residential property should be a long-term investment and those who go into it for short-term gains are ignoring its cyclical nature.

"Those who are complaining loudest about the recent downturn have almost always bought in the past three years," says Tony Clarke, MD of Rawson Properties. "In many cases they expected values to continue to rise indefinitely and were banking on a short-term profit gain. These attitudes are unwise and have always been shunned by the more mature investors."

Investors who have been around for some time, says Clarke, know that value crashes are invariably followed by rises in which the previous values are exceeded. The mature generation of property investors has lived through the 1976 Soweto crashes and at least three serious downturns, only to see the market revive each time.

"I challenge anyone who has owned property for 15, 20 years or more to show that it has not been a highly satisfactory investment. Indeed, for most people their homes are probably the only satisfactory investments they will ever make."

Clarke says a Rawson staff member who bought a home and its adjacent plot in Hout Bay 35 years ago for just over R20 000 now owns an asset worth over R2 million, reflecting an annual increase of 14.7 percent.

"This is by no means an isolated instance. In a 1986 advertising supplement Rawson Properties advertised homes in Rondebosch at about R80 000 and in Tokai and Claremont at R70 000 to R100 000. The annual escalation on these has been even better than that of the Hout Bay home quoted."

Clarke believes this downturn is no worse than those of previous eras. He says property values could still fall further, although he does not expect this.

But he challenge any doomsday prophets to come back to him in 10 or 15 years' time and report unsatisfactory value increases. If this does happen it will be the first time in South Africa's history, says Clarke.

"The South African economy and property are resilient enough to withstand the current threats to our constitution, the worrying corruption at high levels and the huge discontent of the unemployed.

"All of these are serious issues, but is there any evidence to indicate that we are not capable of handling political and economic slumps and inefficiencies as we have done in the past?"

Clarke says the property downturn in South Africa has three main causes:

<li> The spiralling costs of resources which pushed up inflation and which, in turn, necessitated high interest rates.

<li> The National Credit Act, which overnight made thousands of would-be home buyers no longer creditworthy.

<li> The banks' reaction to the global crisis and their clampdown on mortgage loans - to the point where 60 percent of applications are rejected (with a 90 percent rejection rate in some of the poorest areas). Successful applicants are often having to find 25 percent or 30 percent of the total cost as a deposit.

"The banks' stance is irrational and irresponsible," says Clarke.

"It seems to indicate panic. This is particularly regrettable in view of the fact that a similar irresponsibility on their part - that is, a willingness to encourage excessive borrowing at all levels, but especially in the home mortgage market where loans of up to 100 percent and 108 percent were not uncommon - has been a root cause of current problems."

All the negative factors mentioned will almost certainly be resolved in the next one or two years, he says.

Sunday Argus

Posted at 10:56AM May 04, 2009 by Editor in Residential  |