World Cup fever brought with it massive capital and infrastructure spend
at a scale and proportion that has not been seen in its history before.
World class stadiums, improved highway and road infrastructure and leisure
capacity in world class hotels and luxury accommodation. However, the
massive government spend will soon wane and the question is; Where does
that leave the over stimulated SA economy and property in particular?
If you want to invest in property, it pays to do your homework before
you take the step. This is a strategy that can pay off. The shortage of
properties to rent, combined with rising prices in most markets, means
that if you choose wisely and manage your investment closely, you could
reap the rewards.
Listed property appears to be recovering, and at a 3.41% return in the
first quarter of 2010, it outperformed the JSE All Share Index by a good
margin. According to Arntz of Prudential Enhanced SA Property Trader Fund,
property also outperformed cash at 1.2% and bonds at 2.3%.
- The first tip is therefore that listed property could offer a defensive
investment position in 2010.
- The second tip is that in direct property investments you should avoid
buying overpriced properties. Distressed properties definitely still
offer substantial discounts and create the opportunity for real returns
in the future on property acquisitions. Property investment during market
cool down periods could be beneficial as the real value of property
always increases notwithstanding short term fluctuations.
- Consider gearing of properties carefully and do not bond it to the
hilt. This will ensure that you will be able to bank roll your investment
during vacancies or between rental contracts in a market that may not
have recovered fully.
- Property is mostly a longer term investment and therefore one should
not expect an immediate upside, but rather budget for at least a 3 to
5 year investment period. However, conventional wisdom supports that
one should never sell property unless you have to.
- If possible, build up a property portfolio with a sensible mix of
residential, light industrial and small commercial units. Beware of
over capacity and serious fluctuations in any sub portfolio areas.
- Carefully define your investment criteria and include therein a healthy
monthly income from your investment portfolio. Many investors have made
great capital growth investments but battle to fund the holding cost
*Collin Wright is CEO of the International Resource Centre