Property investing: Timing is key

An investment in the housing market remains an excellent long-term investment as long as investors time it right. www.mortgagepluscc.co.za

The ideal is to buy when the market is at a low point and sell when it’s peaking, which is rarely possible, say property analysts.

Fresh research done by property analyst Lightstone shows that home buyers that bought and sold in the period between January 2008 and January 2009, have probably suffered a loss.

However, it is unlikely that buyers who have a five-year view will suffer the same fate, says Jacques du Toit, senior property analyst at Absa.

Hayley Ivins, property analyst at Lightstone, says a home buyer who bought a house for R1m in January 2008 when the market peaked and sold it in January 2009 when the market tanked, probably achieved a price of R960,995. This represents a drop of 3,9%.

But a buyer who bought a house for R1m in January 2008, and sold it in May this year, would have received R1,053m – an increase of 5,3%. A buyer who bought a house for R1m in January 2010 and sold it in May 2010, would have achieved a price of R1,096,500m, a rise of 9,65%. www.mortgagepluscc.co.za

Ivins says it shows that the housing market has made progress as far as prices are concerned, but the transaction volumes are still low.

Lightstone’s house price index looks at where the market is at right now in terms of total transactions, distressed sales and houses that have been sold for a lower price than the previous sales price. This index is regarded as a reliable measuring stick as it compares the prices of houses sold to the price that was previously paid. It is based on Deeds Office data.

Du Toit says to get the timing right will be nearly impossible, but buyers and sellers have to make their decision in light of trends in the market at a given point as well as the future expectations. “If the expectations are that prices will fall in the near future, the buyer might want to wait a little bit. But if it is expected that prices will rise, he has to jump in and buy.”

He says for the seller it is imperative to look at current prices and compare this to what he paid.

It is important for the buyer to look at where the level of the price currently is compared to a while ago. “For the buyer it is about affordability and if he’s getting value for his money.”

He says the current information available in the market can be used for this. This includes broader economic data and the house price data, which indicates broader trends in the market. – Elma Kloppers, Sake24

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Investors and homeowners who were spooked by the downturn in the housing market in 2008 can rest assured that residential property remains an excellent long-term investment, as long as you get the timing right.

Property analysts Lightstone have researched trends in the South African housing market over the past decade and found that only homeowners who bought and sold in a brief 12-month window from 2008 to 2009 would have lost money on their investment due to negative house price inflation.

The housing market has stabilised and we are now entering a period of recovery, but we cannot discount the possibility of another dip, as the global economy remains under pressure.

The Lightstone index looks at where the housing market is now in terms of total transactions, distressed sales (property within 31 days of a sale in execution notice), and negative sales (homes sold for less than the previous purchase price), comparing data from 2000 to 2010.

Looking at specific examples, we can see that if you bought a property for R1 000 000 in January 2008 at the peak of the property market and sold it one year later in January 2009 at the lowest point in the property market dip, you would have realised R960 995 or negative inflation of -3.9%.

However, if you bought for R1 000 000 in January 2008 and sold just over two years later in May 2010, you would realise R1 053 700 – an increase of 5.3%. If you had bought the property in January 2009 at the lowest point and sold in May 2010 just 16 months later, you would realise R1 096 500 – an increase of 9.65%.

This shows that the housing market has gained the ground lost in terms of house prices from 2007, although the total volume of transactions per month – which measures all residential properties purchased – is still down. A steady downward trend can be observed from highs in 2006 to January 2009 when this begins to stabilise.

Negative sales peaked in 2009 and there has been a strong downward trend since then, showing that house prices have recovered, but the relatively low number of total transactions shows that homeowners are still cautious.

Distressed transactions as a percentage of total transactions have also dropped sharply from highs in 2009, when many homeowners were forced to sell their homes as they could not afford to pay the monthly home loan instalment when interest rates were increased.

Measured by wealth segment, the index shows the strongest recovery in mid-value properties of R250 000 to R750 000. Luxury properties are defined as those selling at or above R1.5m, while high value properties are those priced from R750 000 to R1.5-million. The affordable segment, houses below R250 000, is not represented as prices tend not to be driven by rational purchasing decisions.

Luxury properties saw strong growth during the boom period from 2002 to 2006 and are still doing relatively well. However, this trend is what one would expect to see – that there would be now greater demand in the more affordable sector of the housing market, given that both the housing market and economy have been in a slump from which we are only starting to emerge.*Hayley Ivins  is a property analyst at Lightstone

By choosing Mortgage Plus for a loan, you will get professional advice to make sure you are getting the best deal possible.

CONTACT US

Speak to a home loan consultant about financing your new property or reviewing your existing mortgage. We are able to assist in lowering your bond repayments and securing attorney discounts.

Complete this short form online
Call us on 011.327.4489
Email: morne@mortgagepluscc.co.za

www.mortgagepluscc.co.za