Innovationvillage: Early 2012 : The Nigerian Classifieds market alrea...

Innovationvillage: Early 2012 : The Nigerian Classifieds market alrea...: Early 2012 and the Classifieds market is already buzzing with new entrants, products and features. Private Property, and affiliates Cheki (cars) and Jobberman (Jobs) are sneaking out from stealth mode into the media space.

Property Tribe | A South African Property Blog » A QUICK LOOK AT AUGUST STASTICS

Property Tribe | A South African Property Blog » A QUICK LOOK AT AUGUST STASTICS

8 FUNDAMENTALS TO REMEMBER WHEN INVESTING

This morning I received an email from a person who had read an article that I wrote for Entrepreneur Magazine, and he was asking what are the “fundamentals” property investors talk about so prolifically.

I got to thinking that maybe they are not so obvious. In fact I realised that they may be quite subjective as different investors buy for different reasons with very different circumstances.

So let me put 8 of my most relevant fundamental rules that should drive your property investment:

1. Cash flow – The market is not going to take off like it did in the last boom, and it is predicted that it will stay flat for the next few years as we recover from the excesses of the previous cycle. SO don’t try to speculate with high end residential stock. Rather look at property that generates cash flow – yield. That can be commercial or residential.

2. Location – cash flow is important but so is location, so be careful of the low end flats in bad areas. Would you live there? Are you prepared to go and sort out an issue with the tenant?

3. Buy good quality stock – If the building or unit is cheap, there may be a reason, and maintaining a poor building is always more expensive than you imagine.

4. Customers/tenants – all business is built around customers, so when considering an investment look at the potential to attract tenants. Let’s assume you have an industrial building selling for a high yield but purpose built for a particular business. When the lease is up and you start looking for new tenants will you have to change the building substantially to match the market needs? In residential property, this means buy near a commercial node, where there are always tenants.

5. Retail Value – finally look at the value. Any trader will tell you that good business requires that you buy for R1 what you can sell for R2, so why should property be different? Find a good buy, where the product is being sold for lower than market. There is lots out there at the moment.

6. Replacement value – how much would it cost you to build or replace the structure + land? If you can buy land down the road and build for less, it probably makes sense to do so. It is said a real estate bubble as a time where the market is paying more for second hand property than it costs to replace it. So beware if you are paying a premium over the replacement price.

7. Time – property investment is not an in and out business. It’s about creating long term passive income. Match your expectations.

8. Gearing – Don’t over extend yourself, you don’t want to be forced to sell when everyone else is doing the same. But gearing can get you great returns on your cash employed.

When we talk about fundamentals, its mostly about using common sense. Whatever your financial advisers say, property is a great way to build long term security, and you don’t have to give up your day job to do it.

HOW CAN I TELLWHEN IS THE TIME TO BUY? | Property Tribe | A South African Property Blog

HOW CAN I TELL WHEN IS THE TIME TO BUY? | Property Tribe | A South African Property Blog

ON THE NET OR OUT OF BUSINESS

Bill Gates really got my attention with his message in the late 1990's "You are either on the Internet or out of business" when he was pointing in a direction that was inevitable, to a new world where the personal computer and the associated networking capabilities would connect people like never before. The power of this technology would disrupt the way we operate, forever.

It has taken longer than Bill imagined, but the world has indeed flipped over. It is flatter, leaner and faster.

I am particularly interested in how the Internet would disrupt this major industry of Property. IN South Africa our poorly regulated, actually quite antiquated Real Estate industry has held back the flood. Many estate agents still do not even have access to the Internet, and certainly the advertising of houses on the Internet is viewed with suspicion, even now. Notice how many adds on the property portals are brochure ware, nothing more than an online add to fish for buyers for properties not listed, or even worse, to solicit sellers.

But wake up to the facts, guys:

• 3.2 million adults have access to the Internet in SA according to AMPS 2008.
• 2.4 million use the Internet for search...(would property search be relevant?)
• 2.1 million uses it to do research and obtain information. (property for sale?)
• 2 million use it to receive and send e-mails...
• 0.9 million use it for banking purposes
• 0.6 milion use it to download music.
• 83% of all Internet users have access either at home or at work, which we can assume puts them in the LSM 9 to 10 categories.

So here is what brokers and Estate Agents should be thinking about. Their target market is LSM 9 and 10, of which 77% of these people use the Internet.

The majority of these people will search and research by default first....using the Internet. And Broadband is coming...fast.

You can surf the wave, but dont think it wont come, "you are either online or out of business" .

HOW LONG WILL THE HANGOVER LAST

Following a quarter of a century of the fastest economic growth mankind has ever experienced, we're now apparently enduring the resulting hangover. Easy credit around the globe resulted in debt leveraging, and pushed house prices by almost obscene percentages.

We're now faced with some house price contraction as world credit tightens up once again.

South African house prices have been resilient compared with most foreign markets, which seem to have corrected by as much as 20%. The experts suggest that our house prices are being held up, (even in current market conditions) by demand, as thousands of new buyers come into the market following the economic growth of years past. As in China and India, more people are entering the property market as their standard of living improves.

Also, our banks have not been caught up in the global credit crises. Whilst they may be a bit more paranoid, with credit managers throttling down the industry, the banking institutions in this country are still strong. In fact, some will still loan 100% of the value of the property to 'A-grade' buyers.

But we also know that house prices tend to move in tandem with interest rates, so the head will throb till interest rates move down noticibly.

So what are the current pointers?

The world central banks have started cutting interest rates aggressively, in an attempt to inject confidence back into the markets. The Rand has been hit hard in the last few weeks, which will not help our cause, but oil prices have also tumbled , which should help balance the effects of a soft rand on inflation.

Experts still predict a fall-off in interest rates, and the markets are still discounting up to 3% rate declines through 2010.

New developments in the lower segment of the market, especially those with transfer late in 2009 or early 2010, in secure complexes and near places of work, are still safe buy-to-let choices for the prudent residential investor.

STILL HOOKED ON INVESTMENT PROPERTY

The business of property is an affliction that affects many of us. We all get carried away when prices are powering forward, pushing house prices higher than they should be, then we overreact when the market slows letting the market freefall. The property curve runs pretty much in line with interest rates but from a higher base each cycle. Put simply, investing in property is cool because you can anticipate what direction in house prices are moving. Right now we know that prices have softened over the winter compounded by all the things that are now old news, the credit squeeze, electricity shortages, political uncertainty and reduced affordability. There is however anticipation that interest rates are reaching a plateau and the market is now alive with opportunity. I feel summer coming on.

Some of you may still believe that you have it all wrong and property is a risky place to build your wealth? I think that you will find that history proves differently. A recent report released by Jacques Du Toit, ABSAs property expert really put it in perspective and I have included his graph below. He plotted the internal rate of return of buy to let residential property over the periods of five, ten, fifteen and twenty years, and in South Africa property has beaten most other asset classes, as well as inflation.

The fundamentals are all pointing in the right direction for Buy-to-Let property, so if that’s your thing and you have access to credit, you will struggle to find a better time to build your portfolio.