BY MONIQUE DU TOIT
D
eciding to invest in property is the easy part . Next , you need to decide which sector is the best bet for your money . With near-daily fluctuations in the local market , it can be difficult to know which type of property will best suit your needs . Before we get into it , let ’ s break it down to the basics . We ’ re looking at residential and commercial property . Each of these can be broken down into their respective subsets . It ’ s important to note that no one type of investment will be good in all parts of the country . As always , be sure to do thorough research into the area you ’ re investing in , and don ’ t be shy to ask around and get the best possible advice from local experts .
Residential
For many investors , residential property is their first play at the real estate investment game . It ’ s a simple market to understand , since we ’ ve all been living in some type of residential property for our entire lives . But not all residential property will give you the same types of returns . The FNB Area Value Band House Price Indices , published in May , groups areas according to their average home transaction values , using deeds data , and include all cities and towns in South Africa .
The five indices are the Luxury Area House Price Index ( Average Price = R2.358 million ), the Upper Income Area House Price Index ( Average Price = R1.251 million ), the Middle Income
Area House Price Index ( Average Price = R895,089 ), the Lower Middle Income Area House Price Index ( Average Price = R577,587 ), and the Low Income Area House Price Index ( Average Price = R364,937 ).
According to John Loos , household and property sector strategist at FNB , The Low Income Area House Price Index was again the strongest performer in terms of year-on-year house price growth , recording 13.9 % year-on-year for the 1st quarter . This is an acceleration on the prior quarter ’ s revised 13.7 %. Loos is sure to point out , however , that these figures can be misleading . “ This index includes the subsidized housing component , and new homes in this category , which are not sold to their new owners , and are often registered at a value with the deeds office which does not reflect any market value .
“ Over the years , there have also been periodic sell-offs of rental stock by councils which have not necessarily taken place at market value . Such distortions mean that in a repeat sales index for Low Income Areas , many homes prices come of a very low base not reflective of market values , and show major price inflation when resold at market value at a later stage ,” he explains .
Looking at the Lower-Middle Income Area Value Band , we see a 7.6 % year-onyear value growth , the second strongest rate behind the Low Income band . This , Loos explains , is possible evidence that the lower end has recently been showing strength relative to the higher end . He notes , however , that the year-on-year growth of this band is slightly lower than the previous quarter ’ s rate ( 7.7 %), and suggests that the segment may have been peaking recently .
Over in the Middle Income and Upper Income Area Value bands , year-on-year house price growth accelerated slightly in the 1st quarter of 2018 . The Middle Income Area Value Band from 4.9 % in the 4th quarter of 2017 to 5 %, and the Upper Income Area Value Band from 5.4 % to 5.5 % over the same period . The Upper Income Area House Price Index showed its 4th consecutive quarter of quarter-on-quarter growth acceleration , from 1.39 % previous to 1.42 % in the 1st quarter of 2018 , while the Middle Income Area Value band saw a 3rd consecutive quarter of acceleration from 1.23 % previous to 1.31 % in the first quarter of this year .
Loos explains that these figures suggest superior price growth performance at the lower-priced end of the market where average prices are well-below R1m , but that the magnitude of lower end “ outperformance ” relative to higher end areas may diminish in the near term . “ At some point stronger house price growth in traditionally more affordable suburbs leads to their becoming less affordable , and their “ value for money ” attractiveness diminishing relative to more expensive suburbs . In addition , sentiment in South Africa early in 2018 seems improved , interest rates are declining mildly , and leading economic indicators have been pointing towards a strengthening economy . This could lead to that search for relative affordability of recent years , that benefited the lower end more , just diminishing in strength somewhat ,” he says .
The Luxury Area Value Band continued its run of slowed growth , seeing the most significant slowdown of all the value bands since 2014 . In the first quarter of 2018 , this band saw its growth rate fall from 5.2 % in the previous quarter to a rate of 4.9 %. Loos comments , however , that there has been a near leveling out of the growth rate , slowing only very slightly from 1.16 % in the previous quarter to