Gauteng offers ‘least volatile’ property investments
GAUTENG, over time, is likely to be the least volatile region as far as house-price inflation is concerned.

Although the inland province did not experience the high price peaks that occurred in coastal belt areas during the property boom years, it also did not experience the lows that occurred on the coast.

In the long term, Durban is expected to experience the best capital growth in terms of price inflation, on the back of a strong economy and its improved status as a holiday destination.

Newly established Lightstone Risk Management released its first residential indices last week which showed that coastal belt residential property, which includes property within 500m of a beachfront, recorded a massive 64% increase in prices year on year in November 2004. This compared with the non-coastal inflation rate peak of 34% year on year in February 2005.

The coastal belt inflation plunged to 4,2% year on year by December last year, while inland residential property still showed solid growth of 20,3% for the same period.

Higher interest rates and higher prices have contributed to the major slowdown in price growth at the coast.

Many coastal properties are leisure properties and are the first to be sold when interest rates rise.

Lightstone MD Anthony Miller says that in the long term coastal property is a “good bet” because of the fact there is a limit to land space.

Over time, demand is expected to exceed supply.

But Miller says the evidence suggests that coastal property is “more volatile” and therefore potentially more risky for speculative investors “if they get the timing wrong in the property cycle”.

First National Bank property strategist John Loos says that, over time, Gauteng’s residential property market will be the most stable. “If you are looking for relative stability in your property investment, I think that Gauteng promises to be the best bet,” says Loos.

He says Gauteng has a well-diversified economy, which means economic growth should not be too volatile.

“It is over the long term the fastest economic growth province and a lot higher proportion of property is bought either to live in or for financial return. It is not exposed to the pullouts you would get in the nonessential properties you get on the coast.”

But Loos says that in spite of its volatility, coastal regions have performed slightly better overall.

For long-term capital growth he is most “bullish” about KwaZulu-Natal, ahead of Cape Town and Johannesburg.

“In a nutshell, I think there are very exciting industrial developments being planned in KwaZulu-Natal, which will boost the growth potential of its economy and I think that, over time, its image as a great holiday destination is recovering after the development of negative perceptions in the 1980s and 1990s.”

Loos says Durban became a “bit of a dirty” industrial city during this period and political instability in the region at the time also negatively affected the city.

“The province now seems to have sorted out its political issues and I think the working lifestyle of Gauteng means that people take shorter and more high-frequency holidays which makes the KwaZulu-Natal coast relatively more attractive because of the proximity to Gauteng.”

Article by: Nick Wilson - www.businessday.co.za