Rising To The Challenges Of A New Investment World

Private Property South Africa
Neale Petersen

The world economy is still in turmoil and the biggest global threat is in the US and Europe where the threat of a double dip and extended downturn in the economy is imminent. This has adverse effects for the SA economy and a negative roll–on effect for consumers and homeowners. We are going to have to get used to the current environment as being normal one for a while to come. Adaptability to market changes is critical. Making money in property in an extended downturn is challenging and the rules have changed. No longer can we just apply age-old methodologies, which worked before, and expect them to work today.

Tackle the monster while it is small

The biggest threat hanging over SA consumers is our high debt burden. Debt is out of fashion and currently around 78% of consumer disposable income is used to pay off debt. This makes consumers highly vulnerable to absorb any further debt or extra expenses from other sources such as increased fuel prices, higher interest rates, higher food prices or higher taxes and toll fees. It is a well-known fact that more than half of credit worthy individuals can no longer get access to additional credit or home loan motrgages. Of those 50% brave enough to apply for more credit will be declined.

We are part of massive debt-ridden world, which is not going to disappear quickly. We will have to either reduce our accumulation of additional debt or set-off what is already been accumulated. The added pressure on most indebted property owners is to maintain their monthly mortgage payments. For existing indebted property owners it is more of a question of how they can make more money to survive, sustain and retain their property rather than have an aggressive growth strategy. Property rates have more than doubled over a 5-year period while sectional title levies have also increased way above standard inflation. The added increase of electricity costs, higher taxes. Add to that additional maintenance costs of the property and it all adds up to the odds being incredibly stacked against investing in rental property for the short-term.

Up until June 2007 when the National Credit Act was implemented the rate of broad based mortgage lending came to a grinding halt. Many banks did not know whom the other bank was lending to prior to NCA. Today banks now have all the systems and information and more to monitor that situation. Banks are still feeling distress and are actively foreclosing on properties and driving forced sales creating more distress in the market.

The lack of mortgage finance from banks has been a major setback for cash poor investors. The few investors buying today are cash only buyers and according to many auctioneers are the same faces that return to win the bids. These cash buyers are buying for such low prices and are decent making profits when they on-sell those properties. So there are investors profiting in the current market.

First-time homeowners are probably best placed to benefit from the low pricing and bargains on the market while buy-to-let investors pretty much have to hold on to what they have got.

Welcome to the new world of investing

Despite the doom and gloom and negativity there is lots of opportunity. I have always believed real estate is still the safest and best investment of all over the long term. The numbers and returns bear me out. If you want a quick sanity check then just compare the returns of any property over a 7-year period to a Retirement Annuity (RA) or endowment policy.

That doesn’t mean that you have to put your dreams or your goals of accumulating wealth on hold. If you have the right information, education, strategy and willingness to take action to grow your wealth as well as protect yourself (and your family) from uncertain times ahead then you will always be successful.

Investing is about earning a profit by understanding the technicalities of the investment, the dynamic markets and sub-markets and their many unique opportunities that present themselves to you the wily investor.

The legendary founder of KFC Harland Saunders had his idea of a franchise turned down 2000 times. However, he never gave up in his quest and only became a millionaire at the age of 65. If we can apply his perseverance to the fact that the market will turn and that we must persevere in our businesses and in our property investments as well.

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