Real Estate Investor Magazine South Africa June 2013

STRATEGIES BY KOOS DU TOIT Capital Growth W Not the crux of property investment hen making decisions regarding which asset classes to invest in, many so-called experts – focussing solely on capital growth - simply look at the current house price inf lation f igures, and dismiss buy-to-let property investment as a viable investment alternative, based on the current muted capital growth f igures that are a blanket average across various property segments throughout the country. In doing so, they ignore a number of crucial aspects - the very features of buy-to-let property investment that make it such a powerful tool for wealth creation: long-term growth trends in property values; capital growth variances across different property segments; and, most importantly, the ability of buy-to-let property to create an annuity income for life, in addition to the capital growth it produces. Long-term capital appreciation Year-on-year and month-on-month house price growth data are published regularly in the media. Because the data - and its interpretation - is focussed on the short term, the longer-term picture is often obscured. In the case of property prices in South Africa, short-term data indicates that house price growth is currently slow if not stagnant. The house price growth in year-on-year terms for 2013 is expected to average lower single-digit growth of between 4-5% for the year as a whole, slightly below consumer price inflation and thus negative in real terms. But if the long-term data is considered, there is no doubt that house prices in South Africa have continued to rise, steadily but surely, even when the data is adjusted for the effects of inflation. In fact, historically, property values in South Africa over the past 20 years have risen 10.5% on average a year. 24 June 2013 SA Real Estate Investor The “average” is just that: an average The average house price growth across all property segments spanning the entire country is also just that: an average. It obscures the reality that certain property segments are performing significantly better that the “average”. For example, according to Absa’s figures, the middle-segment house price growth came to 11.8% year-on-year, and this still does not reflect the even more impressive

Real Estate Investor Magazine South Africa June 2013 | Page 26