Is property a good investment right now?

Property has traditionally been a good investment in South Africa, with homes appreciating in value over time.

However, recent trends indicate that inflation is eroding property values, and poor service delivery in some metros is deterring buyers. 

This article examines whether buying now is a good idea, and the circumstances you need to consider. 

Tip: Saving for a deposit for a home can motivate you to budget carefully. Find out about interest-yielding savings vehicles today.

Sales on a downward trend

Home sales have decelerated, largely because of higher interest rates, the stagnant economy, and political uncertainty, says Erwin Rode of property consultants Rode & Associates.

“Given the rand’s collapse, the elevated interest rates will persist for longer than many commentators had expected until quite recently,” he notes.

Given this, we are unlikely to see huge capital growth in most parts of the country over the next few years. 

“Our economy isn’t growing and it’s a financially tough period for households in general,” says John Loos, property sector strategist: FNB Commercial Property Finance.

South African property is undervalued

Despite the gloomy outlook, there are valid reasons to consider buying, particularly in specific areas. 

The Western Cape, for example, continues to hold its value, with “semigration” likely to further impact prices, says Sandy Walsh, managing director of Property.CoZa.

“The demand for property in the Cape may drive prices up as buyers vie for a limited selection of homes in the R1.8-R3.5 million bracket, in particular.”

Loos says it’s wise to avoid stagnating areas, including some small remote towns.

“As a rule of thumb, the first question to ask is what the town’s water and sanitation is like,” he says. “The second is to ask whether the municipality is paying its electricity accounts. The third is how many mayors the town has had over the past five years.”

South African property tends to be undervalued in general, especially in comparison to global prices. Loos says that delaying a purchase may prevent you from finding a bargain.

The weak economy also exerts an impact, in that better value can be had by buyers. “There are better buying opportunities when interest rates are high and sellers are under pressure,” he notes.

A realistic outlook

Loos says buying when interest rates are high provides you with a more realistic idea of what you can afford, and will need to repay in the future.

Many buyers have found themselves out of pocket in the wake of massive interest rate hikes, having been lured in by aggressive interest cuts during the Covid-19 pandemic.

This relates not only to home purchases, but also to investment properties. In the latter case, a big mortgage means the cost of financing the property may be higher than any return you can expect from the investment.

“An investor might have to pay in every month because the rental paid by a tenant wouldn’t be enough to cover the monthly instalment,” Loos warns.

Buying a smaller property can help you to contain the costs.

“Follow the Shoprite strategy. Consumers tend to go down-market for their purchases during tough times. The best price segment is therefore below R1 million,” notes Rode. 

Tips for prospective buyers

Loos and Rode offer some parting tips for prospective property owners.

• Assess whether you are willing to stay in the same location for years. Buying removes flexibility, compared to renting.
• Always obtain pre-approval from a reputable bond consultant before making an offer to purchase. 
• Consider the full costs of owning a property, including both purchase costs and ongoing monthly expenses, such as rates, taxes, and levies.
• Bear in mind that location counts when you buy and sell.
• Choose well. Owning a tangible asset is a compelling investment proposition under the right circumstances.

Tip: If debt is getting in the way of your plans to buy your own home, why not consider consolidating your debt?