Residential Property is Still an Excellent Long-Term Investment

Private Property South Africa
Peter Gilmour

In a recent US survey, The 2010 National Association of Realtors (NAR) Profile of Home Buyers and Sellers, American home buyers affirmed a long-term view of home ownership. The consumer survey confirmed that the typical American seller is experiencing positive returns, and that the vast majority of homeowners see their property as a good long-term investment.According to the NAR survey, typical American sellers had been in their home for eight years. First-time home buyers reported that they plan to stay in their new home for a minimum of 10 years, and repeat buyers plan to hold on to their property for 15 years. The overall results confirm two things: home ownership encourages stability, and the longer you hold on to your property, the better the returns.These results reflect many similarities to those in the South African residential property market: For example, the survey shows that sellers who purchased at the top of the market and had to sell in a short period of time were hurt by the price correction, but the vast majority who were able to hold on to their property for a ‘normal’ period of home ownership generally made sound returns when they sold.Despite fluctuations in the housing market in recent years, the bottom line is that the majority of long-term homeowners are practically guaranteed healthy gains in the value of their property. As mentioned in the NAR survey, the house flipping and quick gains that occurred during the property boom period were abnormal - driven by risky, easy-money financing that should never have been allowed in the first place. This is true locally as well - here the aim is to slowly grow home equity without the frenzy of a boom. The National Credit Act is ensuring that banks are lending responsibly and that households are kept in check with regards to manageable debt levels, which will no doubt lead to a slow-growing and more stable and sustainable market.Understanding the property life cycle is key to any successful property investment and being knowledgeable about the property life cycle can serve as an important investment tool for buyers and sellers. The optimal time for buyers to enter the market is when the property life cycle is near its trough, or when it is just starting to move towards an upswing, which is where we are at the moment. If you buy now, while prices are still reasonable, and you are able to hold on to these investments for five to 10 years, you will most certainly realise a healthy investment return sell, if you have done your homework and bought the right property in the right area. Even though it is expected that prices could fall by as much as 2.5% in 2011, the first signs of real growth in the market, and the economy in general, are evident. In fact, economists are predicting that an annual price increase of just below 10% is expected from 2012 through to 2020.Another key point that was covered in the NAR survey, was that the lion’s share of buyers viewed their home as a good investment. It noted that 85% of recent American home buyers see their home as a sound investment, and nearly half think that property investment is better than stocks. Even with the turmoil created by the housing boom and the subsequent bust, these results indicate the long-term view of home ownership as a fundamental goal and value remains sound. The truth is that residential property always grows positively over the medium- to long-term, and it is a far less volatile investment than the stock market. The main reason for this is that residential property is one of man’s three basic needs, after food and clothing. An investment in any one of these will always boast a greater chance of success, because regardless of what the economy does, you will still need to eat, dress yourself and have a home to live in.

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