Property prices are going down in South Africa, and I like it

[Johann Jacobs]

Let me please rephrase that; RELATIVE property prices are going down in South Africa. According to the FNB House Price Index residential property prices have declined relative to inflation for the second year running.

Let me paint a quick picture of the South African property market: Consumer Price Index (Inflation) sits at 4,5% while property prices have only increased by 3,3%.  So in real terms, the property prices have decreased by 1,2%. This decline has continued for the past 2 – 3 years. Prior to this we had 2 – 3 years of real property price increases of 1 – 2 %, and so it has fluctuated for the past 9 years. Prior to this we had 11 years of chaos with real increases peaking at 35% (2004) and real decreases peaking at 20% (2009). The last 10 years have been relatively stable, and as a part time property investor, I like the stability and therefore I like it.

The media in South Africa are reporting on this decrease in real property prices with typical hyperbole. Again, this allows a savvy property investor to pick up a few bargains. The media seems to magnify their headlines, as the media do, and the average property owner does not know any better.  Again allowing the investor to pick up some great deals. I like it.

In addition we spice up the property market with some political and economic uncertainties in South Africa, and I am all fired up for this “buy cycle”.

[Johann Jacobs]

Hi David, 

I'm afraid that I have no experience in this area, short of when I was studying myself. But that was many moons ago. 

I think it could be lucrative, but it could also be risky:

• Lucrative because you need little capital
• Risky because of the type of tenant and possible recourse available to you. 

I believe it will be a far more active form of generating cash flow. 

Good luck and please keep me posted. 

Johann