BUSINESS NEWS - Sell Western Cape, buy KwaZulu-Natal.
One of these days I am going to sacrifice a precious Saturday of mine and attend one of those Think and Grow Rich property seminars.
Or even one of the Robert Kyozaki-inspired gatherings along the same line, where mostly young and inexperienced wannabe property investors are attracted to make their fortune in the residential property market.
I need to understand why — having been an investor in property for almost three decades — I seem to have lost my touch.
I am not making money in the residential property market, with the exception of a small getaway pad I purchased in the Western Cape some two years ago.
What am I missing? What am I doing wrong?
My other residential properties — in good areas — have delivered little capital growth while rental growth has been negative for several years now.
In fact, the rentals I am achieving today on two properties in an upmarket gated estate in the northern suburbs of Johannesburg, are less than I earned on them five years ago.
Capital values have also not moved an inch while levies, rates, taxes and upkeep have been rising at almost double the inflation rate.
I have tried selling them on and off over the past several years, but have not had even a nibble of interest.
There simply are no buyers. And if you happen to find a buyer expressing some kind of interest, the answer comes back: bond application denied.
Exactly the same is happening with two other properties close by — not as upmarket — but also stuck in the same destructive wealth-destroying pattern: rentals lagging but costs soaring.
And again there is not much I can do to get rid of these investments.
My experience, I sense, is more widespread than commonly reported in the media.
By and large most media houses don’t spend a lot of time analysing movements in the residential property market any more, apart from the occasional piece of sunshine journalism concentrating on the handful of homes that go for astronomical prices.
I get the impression that many of these properties actually sell for substantially less than what they are marketed for, as much as 20% or less.
Why do I say that? I often make a note of some of these expensive properties that come into the market at massively inflated prices, especially in Cape Town.
When I try and get a sales price from the estate agency concerned some weeks later, I am often told that the sale has been quietly withdrawn from the market.
The total number of these properties in South Africa that sell for more than R20 million are probably not more than 100 to 200 at best.
That does not represent the property market where us mere mortals dwell.
True facts and figures
I need to find out how these property-promoters manage to twist the facts and figures relating to the SA residential property market in order to convince wannabe property owners to get involved in a market which, on average, has declined 23% in real terms over the last ten years.
In some parts of the country, the market has started declining in nominal terms as well.
More and more, I am confronted with anecdotal advice from investors in various areas of the country, especially large swathes of the countryside, where a normal functioning property market doesn’t exist anymore.
For all intents and purposes, billions of rands of properties have been sterilised by this growing trend.
In my opinion, the performance of your residential investment is determined by four factors:
- The actual rate of increases in the nominal value of the property;
- The rate of growth in the rental paid (if the property is rented out) for the property;
- The cost of money; and
- The rate of increase in rates, taxes and maintenance.
A contributing factor is the availability of money (bonds) but the impact of this on property prices is hard to determine, yet it plays a significant role in either boosting property values (during boom times) and acting as a drag, such as now, when prospective buyers fail to qualify for mortgage loans.
ARTICLE: MAGNUS HEYSTEK
