Real Estate Investment

Property Investment : When to invest in real estate property for sale in South Africa ?

Is the house sale price party over?

If you look at the latest House Sale Price Index which shows month on month real estate house sale price growth for July 2007, you will find it at the lowest recorded real estate level for seven years. According to PropertyHome the 0.5% property sale price increase from June to July 2007 is the smallest increase since September 1999.

First negative real house sale price growth this century

With the inflation rate pushing through the 6% level it has resulted in the first negative real estate house sale price growth in years. What this means is that for the first time since 1999, after adjusting for real estate inflation, the value of the average house for sale has actually decreased slightly over the last month. There are a number of reasons why, and the most talked about one at the moment is the influence of the new National Credit Act on the real estate property for sale market. Many economists are blaming the Act, but according to PropertyHome senior economist, the slower real estate growth is “mainly the result of higher interest rates.” It’s been some time now since interest rates were gradually raised and there was not much effect on the real estate property for sale market to begin with. But now it’s adding up, along with high inflation, and the effects are starting to show on the house for sale real estate market. PropertyHome believes it is still too early to determine what influence the National Credit Act (NCA) is having on real estate house sale prices. We know there are admin backups and we know that more mortgage bond applications are being rejected due to the Act, so chances are those effects will also start filtering through onto the house for sale property market.

What does this latest news mean?

It means that if you have invested in real estate property for sale without knowing how to do the calculations it may be time for you to start worrying about real estate house sale. If you bought planning to sell property (speculation), hoping real estate house sale prices would go higher, and if you cannot afford to hold onto your property sale with the higher mortgage bond interest rates, and if you then have to sell property , you may find fewer property buyers and you may not get your property sale price for your real estate hose for sale. You could lose money on your real estate investment. Why do I not believe in real estate property for sale speculation? Because it is a gamble for successful house for sale transaction. You buy property in the expectation that property sale prices will rise and that mortgage bond interest and inflation will not. You have no way of knowing what will happen with your real estate investment, and so you are taking a chance with your house for sale transaction. For the past five years, since mid-2002, real estate property sale prices have risen – to begin with spectacularly, more recently less so. But now for the first time since September 1999, the real estate property sale price are almost static.

Where does this leave the property investor who invested in real estate?

In this case, you know you do not make your money when you sell property as a house for sale transaction. You always make your money when you buy property. In fact a true investor seldom sell property. So you didn’t buy property in the hope of selling property even higher. You bought property because the real estate sums made sense and the income on the real estate property for sale more than covers your expenses. So you’re not worried about your real estate investment. You also know that income on your real estate investment is more important than capital and you know how to do the worst case real estate calculations. You would have done the worst case real estate calculations and decided that you would still be okay. This means that if you invested in real estate property for sale you have the peace of mind of knowing that whatever the real estate market does, it is not going to affect your property sale too badly. On the other hand, if you did not follow the real estate calculation strategy you may be in for a rude awakening if you built your hopes and dreams on real estate capital growth and then went out on a limb, financially. So you can see that the current conditions may work for you or against you, depending on what kind of real estate investor you are. There are three types when it comes to capital growth.

·          Investors who buy property for sale in order to sell property and in doing so make a real estate capital gain. This group is also called real estate property for sale speculators.

·          Investors who develop land for sale and in doing so depend on real estate capital growth to earn a living on property for sale transactions.

·          The third group of property investors follow a system where you buy property to hold, but use the real estate capital gains to increase their real estate capital base and sometimes even their standard of living.

The phantom of real estate capital gains

For the last twenty years I have taught people that if you build your wealth on real estate capital gains you are going to get a lot of nasty property for sale surprises. I have personally experienced the reality of real estate capital gains: it is just a phantom gain. Capital gains happen when the property sale markets gets emotional and starts pushing the real estate property for sale prices upwards but it can literally disappear overnight when the mood for house for sale transactions changes and confidence in the real estate investment market drops. It does you no good to have R1,000,000 on paper when you cannot sell property to turn the property for sale transaction paper money into liquidity. I have seen this happen in 1984, 1987 and again in 1998-9. This very week several of my students, by making use of PropertyHome, bought real estate property for sale for less than 50% of the bank’s valuation. (By the way – do you know that last month alone there were 1602 properties for sale (with judgements) listed on PropertyHome – the only website in South Africa where you can find real estate property for sale bargains?

Is it good value at half the price? You can’t tell without doing the calculations

Now just because you get a property for sale for half the bank’s perceived property value does not mean it is a good property investment ... you still have to do the calculation the PropertyHome way for properties for sale. So the question is – who really knows what a property sale is worth? If you buy property the bank says is worth R800,000 for R400,000, then who is right about what it is worth? You? Or the bank? Of course the bank is really just following the house for sale crowd in the first place because their property valuation is based on what they think they could sell property for.

The only unemotional property valuation

That’s why I teach my real estate property for sale students to do the calculations for properties for sale. You base the value of the property for sale on what it brings in. That is the only unemotional measure, in the end. For the last five years I have said that serious property investors can’t wait for the mortgage loan interest rate to rise simply because the real property investment jewels will only show in “bad” times.

When everyone else is getting out of property sales ... that’s the time to get in

If I look at what is happening now, true property investors may be in the pound seats if the mortgage loan interest rate goes up another 2% (especially if it is a slow increase over a long period of time, as the mortgage loan interest rate hikes have been over the past year or so) and if the banks are forced to apply legislation according to the National Credit Act. To summarize: if you are a property investor and you invest according to the PropertyHome property investment method, the timing may soon be ideal for you to buy property. If not – I would suggest you get on the property investment course as soon as possible because you are going to need all the advice and strategies I teach if the real estate market turns against you. What if the real estate market does not do what I think it might do? Well, you will still be in the pound seats simply because you know how to invest in real estate property for sale ! PropertyHome property investors know how to make money in “good” and “bad” times with real estate in South Africa.

Author: Realtors Properties for Sale | Sponsor: South Africa House Sale