Buying property is no walk in the park


“When we started our FNB estate agent survey back in about 2004, it was estimated by the agents that about 30 per cent of total buyers were actually buying to let.

“That number is now round about seven or eight per cent. What was happening when we started that survey is that there was incredible capital growth, that was when house price inflation was at its peak in 2004 and 2005,” First National Bank household and property sector strategist John Loos told CNBC Africa on Wednesday.

“The problem with residential property is you’ve got a large group of unsophisticated buyer investors who actually look more at capital growth. You’ve got the unseasoned buyer-to-let investor who doesn’t even understand often what a yield is. Those who bought to let in round about 2006, 2007, I think they lost out badly.”


Loos added that the loss was a consequence of a number of unseasoned buyers focusing more on capital growth than in the yield in property purchases.

A number of property buyers, whether buying to let or buying to sell at a later stage, lack the general understanding of investment principles.

Aspects such as examining the current property market climate before making a purchase, also tends to be ignored.

“Even economists are realising slowly but surely that players in the economy are not necessarily rational. The property cycle, including the house price cycle, is a very long cycle, so it’s difficult for a layman to know where we are in the cycle,” said Erwin Rode, CEO at Rode & Associates.

“In fact the cycle, to give you a feel for it, is between 15 and 20 years long. So, that means that in practice you’ve got about twice the opportunity in your working life to make a killing or to get bankrupt.”

While housing prices fluctuate or decline according to inflation, certain property markets and residential property will nonetheless keep their value.

The layman would still need to thoroughly research the market they intend on entering before making a purchase.

“The first thing is to understand what a yield is. It’s the actual income you can earn off the property, in other words the rental income, relative to the value of the property. You should be buying an income stream more than looking at what you think capital growth may be,” said Loos.