While the South African economy has officially been out of recession for some time, the effects of the global economic downturn are still visible in most sectors. Economists have become even more hesitant to make predictions about economic growth, interest rates and the exchange rate. While most analysts argue that there is still room for an interest rate cut, there are different views about whether it should be done during the course of this year or whether the Reserve Bank should apply a wait and see approach. Where does that leave the property market and the consumer or you as a potential property investor? If you are currently contemplating entering the property market, the economic climate is most likely one of your concerns. While there are numerous properties available, no one wants to pay R1 million for a property for sale only to find out one year later that the property is still only worth R1 million. Unfortunately there are no hard and fast rules when it comes to property investment. The South African property market is currently under pressure – consumers still struggle from elevated levels of household debt and seem to be hesitant to purchase expensive items like motor vehicles and property although the interest rate is at its lowest level in years. This means that even if there is a generous supply of properties for sale, the demand for these properties might not be as robust as in previous years. This situation could give potential property buyers some bargaining power. When making an offer for a property for sale, do not offer the seller his asking price from the outset. You might be surprised to see how much money you can save when bargaining with the seller. If the seller is not in a hurry to sell, it might not be the right approach, but urgent sellers will often be quite willing to negotiate. Also note that if there is more that one serious buyer, this could also have an impact on the bargaining process. The seller will probably use the interest in the property for sale to his advantage. Something that you should also keep in mind is that a solid investment strategy often entails leaving your investment untouched for long periods of time – in other words: have patience. Even if property prices remain under pressure or start to decline, it will start to rise again at some point. Don’t panic when you don’t see an investment return within the first few months – there are indications that even the stock market won’t achieve the same high returns in the next few years as it did during the economic boom. You could enhance your chances of getting a good return on your property investment by buying the right type of property in the right setting. The property market is usually divided into segments consisting of small houses (approximately 80 m2 to 140 m2), medium houses (approximately 141 m2 to 220 m2) and large houses (approximately 221 m2 to 400 m2) and the growth in each segment is usually different. The type of property and the location will also have an impact on the investment return.
How to Approach the Property Market during Times of Economic Turmoil
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