Many investors now have well over one-third their assets in property
The accepted financial wisdom, said to have been first propounded by Rothschilds was that an individuals investments should be roughly equally divided (one-third each) between cash, investments (in this day the stock exchange) and property but this view is taking a knock right now, says Lanice Steward, MD of Anne Porter Knight Frank.
Not surprisingly, said Steward, there have this year been major investors who have now opted to have up to two-thirds of their resources in property - and who are now delighted with their decision.
We can, said Steward, learn a lesson from what has happened in Zimbabwe. When their economy collapsed property became the one asset that people still had faith in, with the result that there were very few sellers (what, after all, could they do with Zim dollars?) and property values kept in line with their astronomical inflation rate.
Obviously few, if any, comparisons can be drawn between South Africa and Zimbabwe, but it is significant that tangible assets such as a home or an apartment, which can give a rent or provide somewhere for the owner to live, always seem to fare better in a severe downturn than shares or investments on the money market and often recovers equally fast on the upturn.
In South Africa, said Steward, over the last half century or so companies have on average given 13% to 15% returns and interest rates have been higher than the inflation rate. Investors, therefore, have on the whole received satisfactory returns.
This, however, should not obscure the fact property had also performed exceptionally well: in the five years from 2003 to 2008, said Steward, cumulative annual increases in value on property had totalled 130% - and had been very much on a par with the All Share Index for the same period.
Now, however, said Steward, whereas the All Share Index on the Securities Exchange has dropped by close to 50%, most residential property has lost no more than 15% to 20% on its previous high peak and continues to give reasonably satisfactory rental returns.
No wonder, then, that people in property have said that they are glad to be there, said Steward.
Right now, Steward believes, is a very good time to increase a property portfolio. In her view prices are very definitely bottoming out and will rise steadily from late 2009 onwards
No doubt much the same could be said for shares and I am not in a position to debate that point, but, as I have indicated, property is always the safest if not the most spectacular investment option.
Article by: www.anneporter.co.za