Bruce Swain, MD of Leapfrog Property Group begs to differ: "Buying property is still the biggest investment that most individuals ever make, but also the safest in the medium and long term. Property ownership is undeniable the only way in which the average South African can create wealth."
Swain isn't alone in his faith in the property market - Arrowhead Properties has invested significantly in the market in recent months.
Last year, the Arrowhead Properties CEO, Gerald Leissner, made headlines when he announced the company's plans to acquire R500 million portfolio of residential rental apartments towards the end of July 2013. Arrowhead has since also acquired a property letting enterprise from Standard Bank, to the value of R150 million and Leissner mentions a forward yield of about 12%.
Mark Kaplan, COO of Arrowhead, told SA Commercial Property News: "We are excited about this direction that the fund is taking as have identified the residential market as an opportunity that could offer significant growth and a competitive advantage in a tough market."
Swain believes that these moves contradict the advice given by Erwin Rode in terms of which the property market is supposedly overvalued by 20%. "This fund is professionally run, subject to public scrutiny and obviously confident about the future of residential real estate," he said.
It is equally significant that two other funds - Octodec and Premium - are also heavily invested in the residential property space, with a total exposure of 8% and 30%, respectively. Residential real estate in South Africa is a clearly a sound investment, both for professional investors and, therefore, for normal homeowners as well.
Until a week ago the forecast for property price growth into 2014 looked good, but then the Reserve Bank's Monetary Policy Committee raised the interest rate by 50 basis points to 5.5%. The move was largely unexpected and both FNB and ABSA have no revised their property forecasts for the year.
In the FNB House Price Index January 2014, John Loos stated that the increase "will have a significant impact on buyer sentiment, because many aspirant buyers will know that interest rate hiking in South Africa, once it starts, normally doesn't stop at one lone hike". Loos also believes that the increase will curb speculative activity in the market.
While the interest rate hike might scare off a few first-time buyers and speculators, Swain points out that properties have steadily increased in value, and will continue to do so going forward. "Regardless of rate hikes or currency devaluation, a home remains one of the best and safest ways for South Africans to invest and will remain so going forward," said Swain.
