From the Desk of the MD - August 2019
Category From the Desk of the MD
"Don't wait to buy real estate, buy real estate and wait." I was reminded of that saying this week when I took a look at the latest Reserve Bank figures on the value of outstanding mortgages.
Given SA's current economic difficulties, I was expecting this value to show a year on year decline but found that actually, it has been growing at an annual rate of 4% since January. Over the same period, property prices have only been growing at 3% a year, so what this means, quite simply, is that there are now more people obtaining home loans to buy property than there were at this time last year.
Clearly, while lots of consumers are listening to those who are all too willing to tell them how bad the market is, how much oversupply there is and how difficult it is to sell property, a significant number of others are quietly acting on a very different and longer-term view.
There are many investors, for example, who are taking advantage of the current oversupply of new developments to acquire rental properties at very competitive prices because they are confident that the economy and the property market will turn, and that they will see good capital growth when it does. And in the meanwhile, they are not even too worried about the current slow growth in rentals, because many developers are now offering investor-buyers two and three-year rental guarantees.
In addition, there are many existing tenants and prospective buyers for whom owning a home is still a huge personal aspiration - and for whom the time seems right to start making a monthly bond repayment rather than paying rent, especially since the banks are so keen to give them home loans.
According to the latest statistics, the average monthly repayment on a new mortgage at an interest rate of 10% is currently just over R8000 for first-time buyers, while the national average rental has risen to just over R7000.
So what's the real message here? It's just this: When worried about the future, one has a choice to do nothing or to at least try to improve your own prospects. One can do what some did in 1999 while the rest of the world froze in fear of what Y2K might do, for example. They took the broader view that no matter what happens, they and a great many other people were going to need somewhere to live - and that they would rather be owners in that situation.
As a result, they started buying up all those properties that were sitting on the market at discounted prices - and ended up making really major gains as the market boomed over the next seven years.
Of course there is no way of knowing whether similar gains are on the cards for those who are currently acting on a contrarian view, but I will say this: The rate of household formation in SA is currently twice as fast as the rate of population growth, and home prices are still rising, so it is highly unlikely they will ever lose out on their purchases, and much more likely that they will profit handsomely in a few years' time.