Short term profit gains in property is short sighted
Article brought to you by Vaal Properties and Vaal Business Directory .
It has been said that residential property has a fundamental cyclic nature, and should be a long term investment. This same cyclic nature is being ignored by those who aim for short term gains.
Almost without exception, those who have bought property in the last 3 years are those who are complaining the most about the recent downturn in property trends. These individuals were banking on prices to rise indefinitely, and to realize short term profit gains. These attitudes are unwise, and mature investors do not adapt such a mindset.
Those investors who have been around for some time, already know from experience that property crashes are followed by a period of price rises in due course. These price rises usually exceed the previous property highs. Anyone who has owned a property for more than 15 or 20 years will be able to testify to this. These folk have probably lived through multiple property lows, and have experienced the new price rises thereater. For the man in the street, buying a home is probably the best investment he will ever make.
A typical case study has shown that a person who had bought a piece of property 35 years ago in a good area close to the coast for 20k, has the same property valued today at over 2 million. Only small improvements had been made. This translates to an annual increase of 14,7%. This is a very desirable return, and is by no means an isolated incident.
The question that many ask is whether the current property downturn worse is than previous era’s. "No" would be a simplistic answer. Well, depending on the viewpoint of the person giving the answer.
E.g., in South Africa, the current property downturn can be attributed, amongst other things, to the following :
- The spiralling costs of resources which pushed up inflation and which in turn, necessitated high interest rates.
- The banks over reaction to the international crises and their consequent clamp down on mortgages. In some areas between 60% and 90% of applications are being rejected. Another problem is that successful applicants have to find between 25% and 30% deposit.
- The National Credit Act ( NCA ) which overnight made thousands of prospective homeowners no longer creditworthy.
This kind of action seems to indicate panic, which is sad and regrettable, since it was the same institutions that for the preceding few years encouraged excessive borrowing at all levels, and more especially in the home mortgage market where it was common practice to grant loans for 100% or 108%. This has been a root cause of today’s problems.
On the bright side, it is expected that the current situation should resolve itself over the next 2 - 3 years.
Brought to you by Vaal Properties.
