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PROPERTY: Keep Your Property Longer for Better Returns
Recent Gauteng Business News
The longer you own a property, the more likely its growth in value is likely to approximate the long-term trend line of 9% a year, and deliver a good return on investment.
Thatâs the word from Lew Geffen, chairman of Sothebyâs International Realty in SA, who has been tracking residential property price growth in SA for the past 30 years and says the accompanying graph shows how the average price of homes sold by his company has grown from R240 000 to R2,6m over the past 20 years â despite all the market ups and downs in the interim.
âIt also shows, for instance, that while the value of properties bought in 1990 had gone up by an average of just 4% a year by 1998, owners who held on to them for another four years would have seen the rate of growth rise rapidly, to bring them back up to the 9% a year level.
âThen over the next five years â the âboomâ years from 2003 to 2007 - the value of their properties would of course have experienced an even greater rate of growth, so that if they had sold then, after 18 years of ownership, they would have done very well indeed.â
Similarly, he says, those who had the foresight to invest in property ahead of the last boom â in about 2000, say, when home prices were still relatively low â were able to reap the maximum benefit of the boom after just seven or eight years of ownership.
âOf course, those who waited to buy at the peak of the boom in 2006 / 7 have not been so fortunate during the past seven years, which have included a recession and the resulting decline in home values, but prices have stabilised again now in line with the long-term growth trend, so they still stand to make good returns if they can wait tosell for another few years, or if they are buying now for the first time and donât leave it too long.â
The return to the rising trend in house prices, Geffen points out, is confirmed by the latest available statistics from other sources. The First National Bank House Price Indexshows cumulative nominal house price growth of 19% since May 2009, and quarter-on-quarter house price growth of 0,4% at the end of March this year.
According to the Absa House Price Index for March, middle-segment house price growth came to 11,8% year-on-year in March 2013, afterrising by a revised 10,9% year-on-year in February, while mortgage originator ooba says prices showed year-on-year growth of 3,4% in March.
Meanwhile, he notes that an average growth of 9% a year delivers good returns on geared money. âIf, for example, an investorputs down a deposit of R200 000 on a R2m home, and the value of that home grows by 9% or R180 000 in the first year, he will have made a 90% return on his investment. And the longer he owns the property, the more likely it is that the annual growth will average out at 9%, as our graph shows.âBusiness News Sector Tags: Property|