Property or cash?

Lately your money would have grown more at the bank than in residential property - shock figure.

Lately your money would have performed better for you in an interest-bearing bank account than a residential property investment.

A grim 5,7% year-on-year increase was reported by Standard Bank in its monthly residential gauge of median house prices this week - which suggests property prices are now rising at a slower pace than inflation (around 6,5%).

The median house price is a figure that suggests half of all houses are more expensive and half less expensive than that price. The median house price for September was R560 000.

Inflation is the scourge that erodes the value of money. The aim of investing is to help your money at least keep pace with, and preferably outperform, the rate of inflation.

Money in an interest-bearing account, like a money market account, would have produced closer to 10%.

But Johan Botha, property expert at Standard Bank's economics' division, was quick to caution that property should be viewed as a longer term investment - so a dismal gain like the latest one that has been reported should not be cause for concern.

He said he does not expect to see a "free fall" in property prices and believes that now may be a good time to buy if you can because it is clearly a "buyers' market".

While he still believes house prices are likely to remain in positive territory, albeit in single digits, over the medium term, Botha points to some economic factors that could "change the dynamics of the housing market".

Some of the dark clouds hovering over the industry include:

  • Another possible interest rate increase when the Monetary Policy Committee meets in October;
  • Economic growth, although relatively resilient, which has slowed to around 4,5% - which is lower than most of Africa;
  • Employment creation, which has "fallen off rather sharply" over the past six months;
  • A drop in vehicle sales, suggesting consumers are concerned about spending on big ticket items;
  • Higher petrol prices, squeezing consumers;
  • Mortgage repayments that are up more than 30%; and
  • Problems in the US housing market, which will knock that country's economy with an impact on the rest of the world.

Earlier year-on-year figures of around 18%, like in June, are believed to have created some distortion, with the buying frenzy prior to the implementation of the National Credit Act fuelling that rise.

"The growth rate of house prices of 5,7% in September, the same as in July, may reflect a housing market where price increases have stabilised in the 5-10% range," said Standard Bank in its report.

Article by: Jackie Cameron - www.moneyweb.co.za