Contrary investing II - Going against the herd.
Is NOW the time to invest? Keep that question in mind while we examine what we think is happening to the SA property Market at the moment.
If you've been reading the press lately you'll have noticed an increasing amount of articles predicting the end of the property boom. Nowhere is this more noticeable in the slowdown in the category of luxury homes, i.e. homes above R1.6 million. Lew Geffen might have been one of the first warning investors of a slowdown in the property market. Numerous articles have followed this, including one by Dr Adrian Saville quoted on our site regarding the risks and makeup of a property bubble.
Smaller investors have started realizing, to their dismay in some cases, that the Kevin Costner Field of Dreams philosophy of 'build it and they will come' has left them struggling to find tenants.
It is the very same factors that make property attractive for the investor that is now taking the tenants, which are the mainstay of investors, out of the rental market and into the ownership side of the property market.
Why is this good news? For the astute investor there are deals brewing and bargains galore. All those speculators who ascribed to the Field of Dreams approach will have to be selling their units soon or digging deep into their pockets to hold onto these tenantless units. The tales of their woes will discourage more speculators entering the market, which will benefit other buyers ultimately.
Just imagine someone that has been trying to sell their house at the overly optimistic R2 million mark and find that in 6 months they have only had one measly offer. "Property boom" they grumble "not that I can see!" It doesn't matter that they purchased the house for R350 000 eight years ago. They still believe with all this talk of property booms that their home is worth the R2 million asked and not the R1.6 million that buyers are willing to pay. Six months down the line, this property is likely to be sold at less than it's true market value due to the length of time and stigma that buyers now view the property with. It is now that astute investors will step in and snap up these properties for 30-40% less than the original asking price.
As an investor, all these articles on a slowing down property market are good news. Meg Wilson in a great article "Let's put the bubble myth to bed now" quotes Dr Andrew Golding Chief Executive of Pam Golding Property group: " we believe a slowing rate of price growth will actually be positive for the market, as a rate of 30 percent or more is not sustainable. From our perspective, the desired annual rate of property price appreciation is somewhere between 12 and 15 percent, and we are hopeful that this is where the market will settle over the next 12 to 18 months."
If you're an investor or owner, the worst thing you can do is listen
to the lowing of the herd. Last year it was a Yukon style boom and this
year it's all gloom. Go out and look. There are always great deals to
Article by : Dave Welmans - (www.thepropertygame.co.za)