Local property vs investing abroad
Clarke understands the South African property market and believes earnestly that local investors underestimate its good qualities. "The good thing about a local investment is you can visit your own investment easily... you can see your property and, quite literally, touch the bricks." He believes fervently that it is important to have a tactile relationship with one's property, but best of all, to know exactly where it's situated.
This is generally not the case with a property abroad
There are a whole host of reasons why South Africans should not venture abroad, such as in the Americas, the United Kingdom or other countries in the European Union. "What happens if the property needs maintenance. How do you begin to determine which maintenance crews to bring in ... in Stockholm or London?"
Dealing with second properties can be a huge headache from a long way away. "It is so much easier to deal with tenants if they are nearby. We as a property company also can tap into the institutional knowledge of our local network of estate agents." These agents have worked with the local market, whether it is in Johannesburg, Cape Town or Durban. "The tenancy rates are generally better because you can control the process yourself."
Properties in foreign countries were not only far away, but a local investor wouldn't necessarily know whether it is a property which is appropriate to the investor's needs. He or she wouldn't necessarily know whether it is in a good area or not, or that it has a good track record of sales prices or that rentals in the area are reliable.
Clarke said it was his experience that the bulk of people living in South Africa who invested in property abroad did so because they hailed from a country abroad, such as Australia or the UK. Therefore, they wished to keep a foothold in the country of their births. From the statistics available to the Rawson Property Group, there simply was no significant trend of South Africans moving into the international property market to any significant degree.
South Africans have wisely not jumped on any bandwagon to 'hedge' their rand assets by investing abroad
Even though the rand had been a little volatile in the last year, South Africans have wisely not jumped on any bandwagon to 'hedge' their rand assets by investing abroad, whether in property or other equity. "I just don't see it... that people are taking their money overseas."
This hedging investment behaviour did, however, occur at least to a significant degree until the worldwide recession, which kicked in during 2008, as a consequence of the sub-prime crisis in the United States. Many investors in South Africa with equity interests abroad "burnt their fingers". The result was that there was little appetite for foreign equities - including property abroad - after the recession ended, even though the rand currency strengthened for a spell after record lows against the dollar as the recession started to bite in South Africa.
The second property market - holiday homes or flats and houses put up for rent - had suffered a dip in South Africa too after the recession, Clarke acknowledged. Significant numbers of these came onto the market during the last five or six years but statistics were showing that this market was starting to stabilize, possibly even improving a little.
The residential property market in general is starting to pick up in South Africa after suffering negative growth in real terms - of about minus one percent - in 2010. It slowed even more to a real negative inflation rate of minus 5.4% in 2011. It was expected that growth which reached nearly 10% in nominal terms in 2012 (or 3.7% in real terms) would be more or less repeated this year. Expectations are that the property market may grow by about 3% in real terms in 2014.
Clarke believes that there should be state interventions to boost the property market. This would include abolishing transfers fees on properties up to R1m for a home or a flat. Clarke believes that the current threshold of R600,000 is not high enough because it still makes it expensive for the middle class to buy homes.
The property boom which occurred in South Africa before the 2008 recession started, which lasted for about four years, was largely spurred on by the emerging middle market. This Clarke described as "the black diamonds" - the emerging black middle class. It was this class who could afford to buy homes for up to R1.5m, which mortgage bonds of just about that size. Abolishing transfer fees up to R1m would be a fillip to this market.