According to the experts, residential and other forms of property such as retail property and holiday accommodation, can be one of the best investments one can make. But, depending on a number of factors, it can also be one of the worst. The devil is always in the detail and for the average person who wants to look at this kind of investment, they may not have the necessary knowledge to make an informed choice.
Property Booms and Falls
South Africans are very pro property ownership, and from around four decades ago right up to the early 2000s, property investors saw incredible growth in residential property values.
One could buy a property anywhere and was almost guaranteed double-digit returns over the next two decades. It became investor folklore that you could almost never lose on a property investment.
The strong run of property values up to the end of the last century came to an ending when interest rates spiked with the prime rate topping out at 24% in mid-1998. Bond rates surged with many investors desperately seeking to sell top value properties. Property values went into freefall. By the year 2000 interest rates normalised and we saw demand for high-end properties increase to levels not experienced before.
Today, property in areas such as Johannesburg are even seeing a decline in value and owners who invested a mere five or ten years ago, may be seeing their investments decline due to factors such as poor maintenance of the city.
The anecdote above highlights that with property investment, success isn’t just about choosing the right location or property type, it often hinges on timing, which can carry significant risk.
Alternative Approaches to Property Investments
There are many opportunities, some offer lower risk with steady returns, while others come with higher risk but the potential for greater rewards.
Take holiday accommodation as an example. This has been a popular form of investment for many, particularly with the holiday e-renting platforms now available to market your property for holiday rentals.
There are risks, however, as anyone who was renting during the pandemic will tell you. Another mistake people make is to use peak time accommodation in the rental for personal use or for family and friends, as this cuts out your most profitable renting periods and reduces returns significantly.
Retail property investments can produce decent returns and are mostly available vis investment funds, and other investment products such as ETF’s and unit trusts that invest in property portfolios. This is likely to produce a more stable return but can also be risky with major market shifts or key properties in the investment portfolio having deflated incomes.
Property Risk Mitigated
While there are a great variety of options available to potential property owners or investors, there is a real need for them to spend enough time finding out the risks associated with these investments. This can help formulate a plan based on what the investors’ expectations are and to determine if the risk level compliments their goals, and if possible, to plan to mitigate these as far as possible. This is where looking for the right advice in the right place becomes a key factor.
Talking to an accredited financial adviser is not only smart but can help to build up a complete picture framework for investments and risk management to see you hit the right values and returns for your hard-earned cash. Getting the right financial advice that meets your life’s context and ambitions is a good starting point to moving your investments into the place you want them to be.