The recent recession through which South Africa has passed and the growing feeling that the JSE Securities Exchange, after a five-year bull run, could be heading for a correction are two of the factors that have led to a sharp increase in the popularity of property as an investment and a marked increase in the number of buy-to-let investors in many of the Cape Peninsula suburbs.
This is according to John Weston, franchisee for the Rawson Property Group’s Bergvliet franchise. “This year,” said Weston, “we have, in our franchise, seen a 35% increase in the number of buy-to-let investors. Today they comprise roughly 18% of our clientele.”
Quoting a recent Financial Mail article, Weston said that property is the now the second most popular asset class with high net worth individuals, running just behind equities. Worldwide, equities now absorb 26% of high net worth individuals’ resources, but an impressive 20% is invested in property.
“Analysing what my clients are telling me,” said Weston, “it becomes clear that the reasons for property’s high ranking as an asset class today are, firstly, that here in South Africa it gives a satisfactory return (on average between 7.5% and 8% on residential property, with a 9% annual capital appreciation). Secondly, property has proved to be one of the most stable of investment channels, despite the recent recession. Thirdly, property gives regularly monthly returns, whereas many shares and financial markets only pay out once or twice a year.”
In addition to these factors, said Weston, property is one of the few assets that can be geared, usually through a bank mortgage. This aspect, he said, doubles or trebles the investor’s return because these are based on the total value of the property not on the relatively small deposit and bond repayments for which the investor is responsible.
“This obvious fact,” said Weston, “is often overlooked by analysts, but, of course, it adds a completely new dimension to property investment.”
Many of those investors to whom he sells, said Weston, add regularly to their portfolios, thereby avoiding high tax payments because the returns or profits are reinvested in new properties.
This is very much in line with the advice regularly put out by Bill Rawson, Chairman of the Rawson Property Group, who has on several occasions advocated that serious investors should be adding one property, preferably a sectional title unit, to their portfolio each year.