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Investment options as markets shift

Although market fluctuations and perceived volatility may keep some investors on the fence, investment in bricks and mortar assets remains a go-to safe haven – and there are different buying options

WORDS: MARANA BRAND • IMAGES: SUPPLIED

The South African property industry hasn’t seen anything like the situation brought on by the pandemic. “From an economic point of view, the closest point of reference we can work with is the global financial crisis of 2008, but the current lockdown conditions are so unique that even the learnings of 2008 offer limited insight into how this will ultimately play out,” says Paul-Roux de Kock, analytics director at data provider Lightstone.

Although house price inflation in all segments of the residential property market entered the coronavirus crisis on a downward trajectory, values in the lower end affordable market were still growing at 10.7%, says De Kock.

In contrast, house price inflation in the luxury market entered the crisis already in negative territory at -1.4%.

Sectional title schemes

Sectional title scheme house price growth held up better during the slow downturn over the last couple of years, and this trend is expected to continue as the lockdown eases and property transfers pick up again, according to data analysed by Lightstone.

“Although not massive at this stage, we’ve already seen a divergence in the house price inflation of freehold properties (1.6%) and sectional schemes (2.4%) as we entered the lockdown,” De Kock says.

“The willingness of potential homebuyers to pay a premium on the additional security that some sectional schemes offer, tends to prevail even during times of crisis,” he says.

Luxury market

During the 2008 financial crisis, Lightstone saw the estate sub-segment of the luxury market remain in positive territory. In modelling a scenario where the forecast model was stretched to take into account a possible 10% drop in GDP and a rapid rise in CPI inflation, Lightstone foresees a possibility that home values in the luxury market can drop by 19%. However, accurate predictions cannot really be made.

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One on Whiteley

Mixed-use precincts

Property trends prior to the nationwide lockdown showed investor sentiment shifting towards mixed-use precincts as offering greater value than large, stand-alone houses, says Guy Gordon, managing director, Amdec Property Developments.

Living and overhead costs associated with stand-alone properties have continued to rise, tipping the scales for many towards downsizing to more centrally located residences. Added to this, an increase in residential rental demand has seen mixed-use residential units becoming a lucrative buy-to-let choice for the savvy investor.

“Now, more than ever, the discerning investor should be focussing on the basic fundamentals of property investment”, says Gordon. “The Covid-19 crisis has emphasised the importance of location, accessibility and convenience in the investment equation, coupled with the need for professionally managed properties where safety, security, cleanliness and hygiene are paramount.”

An example is Melrose Arch in Joburg, where the ability to walk within the protected boundaries of the precinct means that residents can easily obtain groceries, pharmaceutical supplies and all other essentials without having to get in their car or leave their environment.

Life right retirement model

Today, especially for middle- and upper-income retirees, the accommodation available focusses more on lifestyle and quality of life, attracting people at earlier stages of their retirement, rather than when they become too fragile or sickly to live independently.

The life right model is an option for retirees, which involves acquiring the right to live in a particular home throughout the owner’s lifetime (and that of their spouse) rather than owning the real estate itself.

This is ideal for people who don’t wish to take on the responsibility of maintenance and other issues such as insurance, security, landscaping etc.

“The life right concept is attractive for the older person, who may have neither the desire nor the ability to maintain a property,” says Cobus Bedeker, MD, Evergreen Property Investments.

“A capital amount is paid to the developer, who remains the legal owner responsible for maintaining the units, village and facilities,” he says.

When the life right terminates, the property continues to be owned by the developer, and therefore is maintained to a high standard, refurbished, and available for resale by the developer.

According to Bedeker, purchasing a life right in a retirement village brings the added advantage of financial flexibility which can be reassuring for people who may well require expensive medical care and frail care at some point in the future.

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Sitari Country Estate

This article was first published by Your Neighbourhood on the 6 July 2002. 

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