Property investments ‘safe as houses’

The investment world has been shaken up by the US Federal Reserve Bank’s decision in December to taper its quantitative easing (QE) programme, which has shaped the investment landscape since 2008.

 

The fact that today’s investors are again looking for investments that are ‘safe as houses’ simply highlights the fact that the fundamental principles of investment remain unchanged over time. Even in the 21st century, owning property remains one of the safest ways to invest your hard-earned money, he says.

According to Dr Koos Du Toit, chief executive officer of P3 Investment Group, the prospect of QE tapering created a high degree of currency and market volatility in 2013, and analysts expect that this volatility will continue through 2014, since even the gradual winding down of QE will have far-reaching impacts on markets.

These include, among others, upward pressure on bond yields, and thus also on listed property yields, and reversing the higher inflows of capital into emerging markets, notably South Africa.

He says the tapering of QE in 2014 is also coinciding with an upturn in the local interest rate cycle, which commenced with a surprise rate hike in January this year.

Analysts expect a further cumulative increase of 100 basis points increase for the rest of the year, in part due to high inflation. Data over the last 40 years suggest that markets perform less well when interest rates are rising.

Given these realities, and the expectation for continued volatility, uncertainty and high inflation in 2014, investors have been advised to ensure their portfolios are positioned appropriately.

“It is therefore not surprising that many investors are looking for investment alternatives that will offer some respite from the uncertainty and volatility that has not only been the defining characteristic of the markets over the last few years, but is also expected to continue for the foreseeable future,” he says.

Du Toit says the good news is that there is a simple and widely-used investment alternative that is quite literally ‘safe as houses.’

He explains that the phrase ‘safe as houses’ was coined more than 150 years ago in the UK, when the ‘railway mania’ bubbles began to burst, and bricks and mortar became the investment of choice for investors who realised that owning property is one of the safest ways to invest money.

The fact that today’s investors are again looking for investments that are ‘safe as houses’ simply highlights the fact that the fundamental principles of investment remain unchanged over time. Even in the 21st century, owning property remains one of the safest ways to invest your hard-earned money, he says.

 

He says a buy-to-let property produces a dual return on investment: ongoing passive monthly income produced by the property month after month for as long as the property asset is held, as well as ongoing capital appreciation on the property over time.

Dr du Toit explains that there are many reasons why direct property investment – and particularly residential buy-to-let property – is ‘safe as houses’.

Firstly, a direct investment in a buy-to-let property shields investors from the risk associated with market volatility. The demand for residential rental properties is not directly and immediately affected by changes in the market and the economy as the stock markets or even commercial property investments are. Regardless of market volatility and stock market movements, people still need a place to live.

Secondly, while no investment is without risk, a buy-to-let property is a low-risk investment.

“Unlike the many risks traditional investments entail, the risks in property investment can be managed and mitigated – if not eliminated – through tried-and-tested risk management strategies the investor can implement easily and cost-effectively.”

Thirdly, while buy-to-let property investment is low risk, it delivers a superior return on investment.

He says a buy-to-let property produces a dual return on investment: ongoing passive monthly income produced by the property month after month for as long as the property asset is held, as well as ongoing capital appreciation on the property over time.

Fourthly, the returns have a built-in hedge against inflation.

The monthly passive income increases year after year as the rental escalates annually, either in line with inflation or by the percentage stipulated in the lease, usually 8 percent.

In addition, property price growth, while experiencing short-term fluctuations, continues to keep pace with inflation over the long term.

In fact, it is widely recognised that inflation boosts physical asset prices like gold, silver, oil and property, notes Du Toit.

“Given all these advantages, it is not surprising that a direct investment in property is considered ‘safe as houses’. What is surprising for many investors is how simple and straightforward an investment in buy-to-let property can be if a tried-and-tested system is implemented.”

Building and managing a small but highly profitable portfolio of buy-to-let property assets requires no qualifications or experience, very little time and effort, and little or no capital or monthly investment, provided that investors use a tried-and-tested system, including custom-designed software to ensure the right property in the right area is acquired, that the property and the tenant are professionally managed and that risk management measures have been implemented to minimise the impact of contingencies, such as vacancies, interest rate increases, maintenance and more.    

He adds that these volatile and uncertain times demand that investors re-evaluate their investment portfolios.

Courtesy of Property 24

Posted in Uncategorized.


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