USA
cost to replace that same property. Along with the
income yields which are possible, this provides a very
United States House Prices
$300, 000
$275, 000
compelling argument for intrinsic value in the property.
$250, 000
$225, 000
$75, 000
$50, 000
Bottom line: strong rental demand and great
income yields.
Property is a simple investment and it comes down to the
supply and demand. As explained already, this was one
of the underlying problems which caused the GFC and
the over supply in the US. After five years and no supply,
it is believed the supply and demand is coming back into
equilibrium and in line with intrinsic value. Look at the
long -term trends and how they are back in equilibrium.
18
Offshore Handbook 2013
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
1976
1974
Year
U.S House Prices vs. Owner-Equivalent Rent
225
200
House price index
Owner-equivalent rent index
175
150
125
100
75
50
25
Year
After supply and demand, all propert y – be it
commercia l or residentia l – should be va lued
based on the income it can generate. The good
news is that the US property values are back in
line with the long- term trends.
Property opportunities
These graphs a l l tel l a stor y, but when Scot t
Picken asked Ian Fife, editor of the Financial
Mail Property Section and very successful property
investor, “How do you deal with uncertainty?” he
explained: “Through knowledge; by concentrating
on the actual realities of the market we operate in.
An index is a theoretical figure. A transaction is
concrete and specific. If you know how property
actually works, you’ ll know that it remains the
biggest store of wealth in the world for ordinary
people. That is so because it remains the most
predictable and conservative of asset classes. And
it is more often than not a home, too.”
www.reimag.co.za
2011
2009
2007
2005
2003
2001
1999
1997
1995
1993
1991
1989
0
1987
Bank lending – even if Americans can get over the
psychological scarring and realise the opportunity,
there is very limited bank funding and so
prospective buyers can only buy cash. The average
person does not have access to cash like this and so
they are forced to rent.
1972
$0
1970
$25, 000
Index
•
rent. More than 50% of Americans are now renters.
$125, 000
1983
Psychological scarring – 8 out of 10 Americans we
met had had one of their properties repossessed in
the last five years. Everyone from property investors
to secretaries had gone through the pain of losing
their property. Not only had their properties been
repossessed, but the IRS (Internal Revenue
Service) came after them, as the IRS deemed any
write-offs the bank gave their clients as gift on
which the lenders had to pay tax. Basically they
have had enough of property and are quite happy to
$150, 000
$100, 000
Two factors underpinning strong rental
demand
•
$175, 000
1985
Property fundamentals
The biggest lesson which was learnt from the Global
Financial Crisis (GFC) was that those investors who
invested for capital growth suffered losses – be it the
biggest funds in the world or the individual ‘mom and
pop’ investors - and those who invested for income have
not only survived but thrived!
Price
$200, 000