Take a long view of property

The last few years have seen detailed property statistics, and comment on them, flood into the media at a pace never before experienced in South Africa, says Tony Clarke, MD of Rawson Properties, but as these usually focus on the latest fluctuations, not on the big picture, they have often created misunderstandings and misconceptions.

““A little knowledge is a dangerous thing” is never truer than in interpreting property figures,” said Clarke, “and the property economists can add to the confusion by drawing different conclusions from roughly similar data, which are then dramatised by the press.

Comparing what is happening now to a year ago can make a balanced stable market look like a disaster. Similarly, what is happening now can look like a boom compared to a year ago.

“The public,” said Clarke, “are inclined to look at quarter-on-quarter and year-on-year analyses and become optimistic or pessimistic as a result but in property the only really relevant figures are those that cover an eight to ten year or longer period.

“These figures will invariably, without exception, show a marked upward trend.”

Short term forecasts and/or summaries, said Clarke, often do not take into account such factors as regional trends (e.g. the Cape winter, which traditionally depresses the market), the six month lag before a change in interest rates is felt (a 0,5% rise or fall will half a year later increase or decrease sales by 5 to 7%) and the changing patterns in buying (e.g. the Y generation, born after 1970 will typically change houses in two to three years of the first purchase, immigrants within four years and families between five and seven years).

“However, if you look at the long term graphs in South Africa, these XYZ variations will be ironed out.

“A spectacular rise in sales and prices, from 2003 to 2008, was followed by the slump of 2008 to early 2010 but right now the sales figures show clearly that the market is coming back to life. This time it is less wildly active but more stable and, therefore, more sustainable – but this fact has not yet been picked up by the commentators.”

Three years from now economists, said Clarke, will, he predicts, be saying that the steady growth period was better for the SA property market than the previous boom.

“The underlying message, therefore, is that in property although it is preferable to buy in a slump period (Warren Buffet says buy when others are selling), there are no seriously bad times to buy if you are taking the long view. This is why some Rawson Group investors buy one home per annum regardless of fluctuations and interest rates – but they first ensure that they have resources to ride out hard times, temporary tenant failures, changes in the interest rates and the like.”

Article from: www.remax.co.za