Current prospects for property prices May 2010

Talking in the role of keynote speaker at a Rawson Auctions' first multiple auction which was held recently at Kelvin Grove and covered 15 properties in the UCT academic belt, Bill Rawson, Chairman of Rawson Properties, said that now is an excellent time to start building a buy-to-let property portfolio or to be adding to an existing portfolio.

Later, in a lengthy talk to staff, Rawson expanded on this view and explained his reasons for holding it.

These, he said, fall into three categories. The first is the highly satisfactory overall performance of property in South Africa in recent years. The second is the current favourable conditions for property investment and the third is the reasonably bullish prospects for the South African economy as a whole.

South Africa has, in the long term, said Rawson, proved to be a very good place to invest in residential assets. Quoting the UK's "The Economist" magazine's recently published Global House Price Index, Rawson said that their analysis showed that from 1997 to 2010 South African home prices rose 417%.

This, said Rawson, was more than double the percentage increase in any of the 22 countries surveyed - the nearest rivals were Australia with 197% and Sweden with 159% increases.

These figures, said Rawson, have been corroborated by those of an ABSA survey that has shown that there has been a 300% house price rise in the last ten years.

Rawson then quoted several property appreciation performances from his own experience.

The building that was known as "The Westerford Hotel in Rondebosch," he said, could have been bought in 1973 for R285,000. Today it is worth R15 million. Four cottages in Harfield Road which were bought for R24 000 in 1972 would now be worth R4 million and could be producing a monthly rental income of R24 000. A Bishopscourt home put on the market in 1978 for R35 000 is today worth R12 million.

Many other examples of this kind, said Rawson, are available.

Investing in property right now, Rawson went on to say, makes particularly good sense because the market, although now turning, has not yet recovered and those investing now will be doing so at the start of the upturn.

This upturn, he said, is now a confirmed fact: ABSA has shown a 6% month-on-month increase for March and April and Rawson sees this continue reaching 8% for the year.

The current interest rate scenario, said Rawson, is also favourable to investors. With prime now at 10% (low by South African standards), the cost of money is at its lowest point since 1981 and although 52% of bond applications are being rejected, the chances of getting a bond are improving month-by-month, with beneficial effects on the market.

Looking at South Africa's banking industry, Rawson said that South Africa has been one of six countries praised for surviving the recession better than most.

As a result, he said, we can now look forward to a year in which many European countries achieved less than 1% growth our GDP is likely to grow by over 3%.

"Like others," said Rawson, "I am slightly concerned that the state has been spending fast, particularly in relation to the World Cup, and the budget deficit is now close to 7%. However so long as the government sticks to its tried and tested conservative debt limiting fiscal policies which have worked so well to date, we can look forward to economic conditions in which property values will increase steadily."

Asked if rising inflation could not damage growth prospects, Rawson said that increased inflation, coupled to the inevitable consequence of increased interest rates, always leads also to an increase in property values.

South Africa could, said Rawson, feel the impact of the Eurozone financial difficulties, as Europe is a major trading partner these will obviously impact heavily on our exports, but, on the other hand, European investors, frustrated by low interest rates will start looking elsewhere. As South Africa is increasingly on the world's radar map we should be able to attract some of their capital – already we see signs of this."

Stressing, as he has done on many previous occasions, the simplicity of property investment and the fact that it gives the investor far greater control, Rawson said that, it offers a safer haven than either the volatile JSE Securities Exchange or the many investment/financial/insurance channels being touted daily.

Summing up his advice, Rawson said that while other investment channels should never be neglected and while care should be taken not to stretch oneself beyond reasonable limits, a policy of buying at least one investment property per annum has paid off handsomely for dozens of investors dealing with the Rawson group, many of whom, he said, now own 20 or more rental income producing properties.

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