Real Estate Investor Magazine South Africa October 2013 | Page 32

STRATEGIES

BY ANGIE REDMOND

Become A Property Pro
Invest like the best

T

he latest statistics from ooba show
positive year-on-year house price growth
in July of this year of 6.6% to an average
purchase price of R902 900. “Property price
growth and higher home loan approval rates
continue to positively inf luence the property
market, there is renewed confidence in the
market and home buyers have more access to
credit for home loans, which has been aided by
record low interest rates,” says Rhys Dryer, CEO
of ooba. While the performance and prospects
for the residential property market are closely
related but not dependant on the economic
growth of the country, employment and income
growth, property performance is cyclical. A
(property) cycle is a frequent set of improving
and receding discernable (property) trends as a
result of external and internal market influences.

TYPICALLY, A PROPERTY CYCLE
IS CHARACTERISED BY 5
DISTINGUISHABLE PHASES
1 A growth phase (expansion)
2 A (peak) boom phase
3 A recessionary (decline/contraction)
phase

4 A trough phase
5 A recovery phase
To a large extent, it is possible to determine
which phase (of the five mentioned above) the
property cycle is currently in and, then, with some
certainty, to predict the commencement of the
next phase in the property cycle. If one monitors
the general conditions associated with each phase
and correctly predicts and anticipates the onset of
the next set of general conditions, one can, as a
consequence, predict the commencement of each
phase within the property cycle.
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October 2013 SA Real Estate Investor

Adrian Goslett, CEO of RE/MAX, says,
“Looking at property cycles over the past few
decades, there is a definite pattern that can be
followed over a period of nine years. Every nine
years there is an economic downturn, which
takes an average of 10 months to complete from
the top of the cycle to the bottom. The bottom of
the cycle usually lasts approximately 24 months,
followed by a slow yet solid upturn to the top
with a recovery period of about 64 months.
Understanding the property cycles will assist
investors in knowing when to purchase property
in order to see the highest returns on investments.
Investors can confidently take advantage of the
slower periods knowing that their investment will
see significant growth during the booms and solid
appreciation over the long term.”
Understanding property cycles and knowing
when to invest in property is just one step in
turning property into your second income. The
other is ensuing you have the funds to do so, and
that means having a saving mindset. You need
to live within your means and prioritise what to
spend your income on each month. While straight
saving into your bank account is a good start, the
interest you will earn is lower than the inflation
rate. If you take your savings and invest them in
a deposit on a property, your appreciation will
be between 6 to 11%, with a bond you can invest
your money into property worth more than you
have saved. This then comes down to how much
you can afford, which is why it’s so important
to live within your means and have a clean and
clear credit record. The better your credit record,
the more you can qualify for when you apply for
a bond.

Why invest in buy-to-let?
Residential property has always grown positively
over the medium term, it has far less volatility in
growth than, say, the stock market and is more

stable than commercial property. The reason why
is simple, residential property is one of the basic
needs: food, clothing and shelter. An investment
into any of these three will always have a good
chance of success, as they do not depend on the
economy, regardless of what the economy does,
you still need a place to live. It is important to
note that entry-level property is a basic need,
not luxury property, which is more of a want,
so entry-level properties will always perform
better than luxury properties. And based on the
factors of affordability and changing lifestyles,
the focus of the demand for and supply of new
housing has largely been smaller-sized houses
and higher density flats and townhouses over
the last few years. When you invest in residential
property, you should look at entry-level properties,
they will provide you with the first step on your
investment ladder. South Africa has a rapidly
emerging middle-class, and while the population
is set to grow, the one thing that isn’t growing is
land; there is a set amount of land and a growing
demand for rental homes.
Investing in buy-to-let property is not a science
but there are a few hard and fast rules when it
comes to buy-to-let and one of them is to buy
property that your prospective tenant will want to
live in. You may not necessarily love the property
you are considering but as long as your tenant
does that’s what matters. You need to ask yourself,
what does your picture perfect tenant want? Are
you investing in a flat or a house? Generally if you
are investing in a flat then you are going to want
to target either single or married working couples
without children, so you will need to ensure your
property is close to transportation and business
centres. Whereas if you invest in a home, you
are looking at couples with children, so a house
close to a school district that has a good safety
track record and is child-friendly will be attractive
to your ideal tenant. By placing yourself in your
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