Rawson cautions property investors on 'experts'

For example, one of the group's long-term clients, with a large portfolio of rented properties, was assured by a financial advisor that if he sold his property portfolio, the advisor could 'guarantee' him a better return from the money invested in the traditional low-risk property market.

Factors affecting calculations

"This sort of comment is often made without taking into account several factors, all of which actually radically alter the calculations," cautioned Rawson. "The first is that the return usually estimated by the advisor is based on the current value of the property, not on what the investor actually paid for it two, three, four or five years ago. The second factor often overlooked is that in most cases, certainly most of those we at the Rawson Property Group are involved in, is that the investor is making his money on the bank loan, i.e. his actual initial investment is often no more than 10 or 20% of the total cost of the property. The third factor often not taken into account is that if the investor were to sell his property portfolio, he would often be liable for a substantial Capital Gains Tax on the profit of any secondary property, i.e. an investment property. Even on his own primary home, if the property exceeded R1,5 million, the Capital Gains Tax could be hurtful."

A buy-to-let market

Rawson added that financial 'experts' often support their proposals by arguing that rates and taxes are increasing rapidly. Rawson said that such rates and taxes have admittedly become a kind of 'wealth tax', which continues to rise because living conditions in disadvantaged areas need improvement. However, according to Rawson, these increases are often sufficiently compensated for by rising rental rates.

"In certain areas that our group serves, less than half of the ever-hopeful bond applicants are successful in getting finance for their homes. This means that contrary to the declared government policy, there is a growing need for rented properties. In round terms it also means that residential units today very seldom give less than a 5% return and often the figure is closer to 10% - from day one. The buy-to-let market is, therefore, a very good place to be right now and this situation, as I see it, can only improve if and when interest rates rise, making it even more difficult to get home loans," said Rawson.