Investors Have Faith in Residential Property

Much has been said about the residential property market that could lead buyers and sellers to believe that it’s in trouble; from the high price of construction to increasing municipal costs, the difficulty to obtain home loans to economist Erwin Rode’s claim that the market is over-valued by 20%.

Bruce Swain, MD of Leapfrog Property Group begs to differ, “Buying property is still the biggest investment most individuals ever make, but also the safest in the medium and long term.  Property ownership is undeniable the only way in which the average South African can create wealth”.

Swain isn’t alone in his faith in the property market with Arrowhead Properties having invested  significantly in the market in recent months.

 Big Fund Favours Residential Property

Last year Arrowhead Properties CEO, Gerald Leissner, made headlines when he announced the company’s plans to acquire R500 million portfolio of residential rental apartments towards the end of July 2013. Arrowhead has since also acquired a property letting enterprise from Standard Bank, to the value of R150 million and Mr Leissner mentions a forward yield of about 12%. 

Mark Kaplan COO of Arrowhead told SA Commercial Property News, “We are excited about this direction that the Fund is taking as have identified the residential market as an opportunity which could offer significant growth and a competitive advantage in a tough market.”

Swain believes that these moves contradict the advice given by Erwin Rode in terms of which the property market is supposedly over-valued by 20%. “This fund is professionally run, subject to public scrutiny and obviously confident about the future of residential real estate”, says Swain.  

It is equally significant that two other funds Octodec and Premium are also heavily invested in the residential property space, with a total exposure of 8% and 30% respectively. Residential real estate in South Africa is a clearly a sound investment, both for professional investors and therefore for normal homeowners as well.

A Slight Curveball

Up until a week ago the forecast for property price growth into 2014 looked good, and then the Reserve Bank’s Monetary Policy Committee raised the interest rate by 50 basis points to 5.5%. The move was largely unexpected and both FNB and ABSA have no revised their property forecasts for the year.

In the FNB House Price Index January 2014, John Loos states that the increase “will have a significant impact on buyer sentiment, because many aspirant buyers will know that interest rate hiking in South Africa, once it starts, normally doesn’t stop at one lone hike”. Loos also believes that the increase will curb speculative activity in the market.  

Everyone Needs a Home

While the interest rate hike might scare off a few first time buyers and speculators Swain points out that properties have steadily increased in value, and will continue to do so going forward. “Regardless of rate hikes or currency devaluation, a home remains one of the best and safest ways for South Africans to invest and will remain so going forward”, says Bruce.