Political Turmoil Show Property “As Safe as Houses”

Much has happened in the last week in the world of South African politics.  Even though some of the action was anticipated, it came as a shock to the South African economy.  The Rand depreciated by 6% overnight, and at the time of writing this article, was continuing to weaken.

Overseas investors see South Africa as highly risky because of the political volatility and instability.  Not only was the currency immediately impacted, but so was the stock market.  Billions of Rands were “lost” in a matter of hours.

If you were such an investor, that’s not great news.  Some economists expect things to get worse – a lot worse.  Whilst we don’t have a crystal ball, what everyone will agree on is that most investments are extremely risky.  And risk is not good.

While many sectors of the economy have taken a major hit in the last week, just what was the effect on the local property market? Nothing.  Absolutely nothing.  Nothing bad that is.  We experienced our busiest week of the year.  That’s no surprise really.

The reality is that, whilst the property market is impacted by economic factors, it is not nearly as volatile as other investments.  It doesn’t lose 6% overnight.  There are always risks, but even in a down-cycle the movement is steady, not sudden.

The reality is that the property market is considerably more stable than every other investment for one simple reason:  supply and demand.  Even in a tough economy, people need to live somewhere.  Those who can’t afford to purchase have to rent.  There are always investors who see the attraction of capital growth and rental income who take advantage of the demand.

So whilst many investors sadly suffered significant investment loss last week, those who invested in property would mostly have experience no loss at all.  In fact, as more investors appreciate the attraction of property investment and snap up local property, there will be an increased demand.  The stronger the demand is, the more property values escalate.

That means property values should continue to escalate in areas of high demand, such as the Western Cape and specifically the Cape Town Metro, including local property in the Helderberg area.  The continued stream of up-country buyers into the area is also adding to the high levels of demand, and there is no sign of this letting up.

If you have the means to invest, now would be the right time to look for low-risk investment vehicles – and it’s hard to beat property.  Not only is it stable, but in most cases will give you a rental income as well as good capital growth.  When you gear your investment with a mortgage bond, you are able to maximize your net return on investment in a tax-efficient method.

So whilst the country is sorting out its political mess, invest intelligently in a market that will weather the storm and give you great returns without high risk.

Steve Caradoc-Davies

Principal

Harcourts Platinum

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