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Property Prices

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Not applicable
In FM mag last week they showed property growth for the past 1, 3 & 5 years in JHB, PTA, DBN & CPT. Just out of curiousity I took the winning sector in JHB (i.e. house with the biggest growth - JHB R1.5m to R3mil in the Orchards) to work out the annual growth.
The annual capital growth was 6.2% a year (from -> 35.1% in 5 years), if I include a rental income of 6% of the house price (take this figure as the after tax rental income) - the total compounded annual return works out to be 11.3% (assuming all rent was paid and no maintenance fees were paid).

For me looking at all the risk in property for the best of the best 11.3%??? I'd rather take some equites (especially when I look at my Capitec profits.
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10 REPLIES 10
THRESHOLD
Super Contributor
Item in the weekend financial section: Since the end of WWII, SA property has yielded .5% pa in adjusted real terms (before maintenance & repairs and associated costs) This also excludes the obscene costs associated with buying and selling. Clearly the "all-in real rate of return must be negative.)Over the same period, the JSE has given a real return of 8,5% pa (including dividends.) The piece was non-specific - I assume the return was compounded in simple pa terms or the figures would be fairly useless.
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THRESHOLD
Super Contributor
Property was 1.5% (not .5%) The rest of the figures are all presented on an "if memory serves" basis - this piece is from a few weeks ago. You can, I am sure, dig it up in the online edition if you have the energy.
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Not applicable
Yay ! we haven't had a property vs equities debate for ages. But I will add fuel. Average property growth vs benchmark index growth is a useless measure - unless you are buying bulk lots. Property is always going to be about the merits of the unit in question (just like a good share). At least what average property growth increases tells you, is that the market is moving up, which means that a buy low sell high plan will be supported.
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prancing_horse
Super Contributor
I have done well out of commercial and industrial property, (owning them outright and not through listed companies) but a house just like a car is a necessary evil.However for the undiscipled owning a home is in one way a forced method of saving.
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THRESHOLD
Super Contributor
Of course, you must follow - the old "3 rules of property - location, location, location" - otherwise all bets are off. Just to correct an error in logic - the same applies to shares - the quoted performance relates to the index as a whole - many shares performed poorly - and still more - failed altogether.
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THRESHOLD
Super Contributor
Yes- I know we have had this argument before - PH. To set the record straight - while I tend to "bash" property as an asset class - it has been very good to me over the years - but I have bought what I deemed to be desirable growth locations - usually completely untenanted/able. Most property buyers do not have access to this market. A house is a necessary E-V-I-L (All CAPS.) Renting is an option for many - but they blindly follow the "don't make the landlord rich" advice - and make "the bank" even richer as a result. For me the stock market has made a mockery of property performance though.
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Charles23
Contributor
I am a student and have recently bought a flat with the plan to resell and buy again continuously. I did this because I have been told my whole life that property is the safest investment tool! After reading the above mentioned articles I have my doubts. What do you guys think. Should I sell this flat and try the cash on the index or keep it in property?
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Not applicable
My advice is with property: When you are the tenant property is ok, you need somewhere to live and there's no point paying someone else's rent. Its a good idea to own 1 property, but after that (IMO) I'd put my money into the share market.
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Jughead
Contributor
What makes property investment attractive to the ordinary guy is that it is highly geared. This creates the illusion that it is a good investment even when the cost is very high. The risk in this country is also substantial
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Blik
Super Contributor
Another bonus about property is that it is possibly the only investment that you can go to a bank and get a loan for a million bucks or whatever the price may be, and still get someone else to pay off a portion, or the whole bond amount. I cant go to a bank and ask for a loan to trade shares. Having said that it still isnt enough of a carrot to make me buy property as an investment-what with the annual cost, tenents who may not want to pay on time, rental income that is taxable etc etc. I bought my house as a lifestyle investment as much as anything. I was sick and tired of renting dingy places where I couldnt make the changes I wanted. I did however shop around a bit and was able to buy property that I was able to pay off in under 6 years.
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