Real Estate Investor Magazine South Africa November 2014 | Page 34

FINANCES

BY KOOS DU TOIT

Capital Growth of a
Property Investment

How to build up massive equity

O

ne of the most outstanding features of an
investment in property is the steady, longterm capital growth it generates, even as
the property provides a residence for the owner or a
monthly rental income for the buy-to-let investor.
The national average house price inflation has been
muted for a number of years, as the market corrected
itself following the property boom which reached a
peak in 2006 with house prices at the time growing at
a staggering 25% per annum. But the property cycle is
turning upward yet again as recent figures reveal.
According to the most recent FNB House Price
Index, the average house price for August 2014 rose
5.4% year-on-year. However, notes FNB, when
examining the longer term performance over a 10year period, in real terms the index is 12.2% higher
than July 2004, and 98.5% higher in nominal terms
compared with August 2004.
However, smart property investors understand that
these blanket national averages obscure the reality that
certain areas and property segments are performing
significantly better than the ‘average’, and they buy
in areas and in property segments that are providing
significantly higher capital growth.
Furthermore, these investors also understand blanket
national averages based on short-term periods disguise
the long-term reality that property capital growth has
averaged 10.5% per year over the last 20 years.
So, while smart prop