Property Talk

Cash is King in the current market Cash is King in the current market

There are three key words to remember at this point in the property market cycle. Buy, Buy, Buy! Rarely does the market scream so clearly and so obviously for so long as it has currently been doing.

If you believe that timing the market is important - which it is, and if you agree with me that you make your money when you buy rather than when you sell, which is proven to be true, then here is some inside information.

The market is offering the best buying opportunities in over ten years. Will this continue to be the status I think it may for a while, yes, but things can change quickly and within months sentiment can change dramatically and the shift away from a buyers market can occur.

The cyclical nature of markets is something that is studied by academics and economists in order to forecast near term trends and in the process make money. Here are some of my reasons why I am calling it the best buyers market you are likely to see over the next ten years.

Firstly what goes down must go up. FNB House Price Index figures for July 2019 show average house price growth at 3,6% - similar to the 3,5% recorded in June and similar to the entire year so far. We are definitely down on 2018 which averaged 3,9%. What we know is that CPI inflation is at 4,5%.

This means that real house price growth has been negative with homes having become cheaper in real terms over the past year. With three years of low house price growth figures to support my view, the probability is now all on the upside rather than the downside.

FNB's segmentation of the property market into five price bands demonstrates that all the growth has been in the low end of the market, with the low income band (average price of R395,000) growing by 17,6%. Wow! When last did an asset class you own grow by that rate? If you are a property developer and you are not seriously considering how to address the low end of the market you may be missing out on some great opportunities.

Everybody has to live somewhere and every home is somebody's castle. Even at R395,000 this could be a very profitable stepping stone on the property ladder and an exceptional way to build long term wealth. In contrast the luxury end of the market (top 20% band) has grown by -0,2%.

For bargain hunters with cash on hand this means opportunity. Cash is King in the current market. If you can mix this with speed then you will be surprised at the discount off asking price that is likely to result.

Rental inflation in SA currently averages 4%. However if we consider StatsSA figures by Province then we note that the rental inflation in the Western Cape is by far the highest at 7,6%. KZN Rental inflation is a mere 2,5% and Gauteng 2,8%. It would appear that a lot more people in the higher end of the market have made the decision to rent rather than buy. In addition homes that remain unsold may well find their way into the rental market. Higher priced homes come at higher priced rentals but it is still half the price to rent than buy and if you are not seeing capital appreciation currently, more people are tempted into the rental market for the same type of property than investing.