Property Talk

Author: Andreas Wassenaar
Date: 2014-08-01

Investing in property is proven to be one of the best ways to accumulate wealth. It starts with your primary residence, which provides an outstanding opportunity for most of us to add value over time to the property and to use mortgage finance to leverage our investment.

The next step would be finding under-valued buy-to-let properties in areas where high rental demand is evident and the long-term prospect of strong capital growth seems likely.

As a committed property advocate I make it my business to find out and understand the factors that have an influence on the value of my investments to ensure I am able to read the longer-term trends that appear. Having an understanding of where the current market is placed in the bigger property market cycle gives me the confidence to make the buying and selling decisions, which will result in a profitable investment.

To this end the Reserve Bank provided useful information during the month of July. The leading and coincident composite business cycle indicators are great statistical tools to provide insight into the place we find ourselves in the business cycle and acts as an early warning system for a trend change or negative impact on the business environment.

The leading business cycle indictor increased by 0,1 percent in May 2014 - good news as the negative move earlier in the year has been stopped for now. The three largest contributors to the increase were the percentage change of jobs advertised in the Sunday Times, the number of building plans approved and the index of prices of all classes of shares traded on the JSE.

The largest negative contributors were the volume of orders in manufacturing, the average hours worked per factory worker in manufacturing and the number of passenger vehicles sold.

So in a nutshell, employment and building activity is up, but manufacturing and vehicle sales are down. The bigger picture shows a very flat leading business cycle indicator since 2010 after a rapid recovery from 2009.

The other published report by the Reserve Bank was the 14-page statement of the monetary policy committee (MPC) following their meeting on 17th July 2014. The result was an increase in the bank rate by 0,25% from 18th July.

The resultant similar increase in the mortgage rates charged by commercial banks is small enough to be considered nominal and unlikely at this stage to impact on our property sales.

The MPC report highlights the depreciating Rand, the recent risk of a wage-price spiral resulting from recent wage settlements in excess of inflation and productivity growth, and the surge in food inflation as the top three drivers of our local inflation rate which is now at 6,6% and above the targeted top limit of 6%. So what does this all mean to me as a property investor?

The window of opportunity for buy-to-let properties is wide open on the North Coast. Massive rental demand as more and more people migrate into the area, limited supply of quality available rental properties and property prices that have not yet started to move upwards now combine to provide the perfect time to invest in a buy-to-let property.

For further information and an interactive analysis of this article follow my blog: andreaswassenaar.blogspot.com.

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