Property research articles

The South African government recently sold the first inflation-indexed long bond. Bids ranged from 10% to 5%, and only a small amount of nearly R500 million of the R189 – maturing in 2013 – was allotted at the cut-off price of 6,5%.

The government’s announcement of the introduction of capital gains tax (CGT) as from next year will have a profound impact on the way investors behave. This includes the property market.

Some investors grow up believing religiously in the infallibility of bricks and mortar as an investment class, others will never be convinced. It may have a lot to do with one’s risk profile and degree of ignorance.

Those of us who were brought up in an inflationary environment thought that this was how the world normally functions. Not so. The history of the world’s major economies shows that through the ages the normal state of affairs has been no or little inflation. Economists seem to have reached consensus that South Africa is now heading back to this normal state of affairs, lagging the rest of the world by about a decade.

It is common knowledge that throughout the 1990s house prices in South Africa did not keep up with consumer inflation. The exception of course was your favourite metropolis, Cape Town, which bucked this trend quite dramatically.

Since timing is so crucial for property investments, it is worth dwelling on the property cycle, and where we are in this cycle.

When buying a property, location is not nearly as important as timing. This seems to fly in the face of conventional wisdom, so I better explain myself swiftly before the lynch mob gets the upper hand…

In the good old days – before inflation reared its head in the early 1970s – South African property investors didn’t worry about the “performance” of their real estate. Nor did they know how to calculate total returns (income yield plus capital appreciation) for a specific period.