SA is a risky place

Eskom is imploding and you can be sure that it will drag the country down with it. Rating agencies regard Eskom as a big risk to the well-being of South Africa but politics is preventing the obvious solution, which is privatisation and partial replacement with renewable energy.

The rand took a beating and traded well above R14/$ again at the end of last week, benefitting those investors with offshore exposure. Equity markets are still positive for the year with the JSE up around 3,5% and the US markets up close to 10%. In 2018 we saw the listed property sector dragging the markets down with a -30% return and it seems this year it will be the general retailers, down 11% year to date.

We South Africans love to own our own property but we have to realize that fixed property can be a very risky investment. Not only are there costs involved such as financing and transfer; maintenance, security, levies, insurance and more; and finally capital gains tax; but spatial development can cause a once sought-after property to lose much of its appeal when there are changes in the area surrounding it. Your view could be blocked by a new build next door; a low-cost housing development could go up close by; new developments in the vicinity could foist anything from barking dogs to a crime wave on you.

Property is a cyclical asset class at the best of times and you have to plan well ahead if you want to downscale or change your current situation to make sure you do not get caught in a down cycle. Property investors should also pay attention to the effect of inflation on the return they realise when selling their property. A house purchased for R1 million today and sold for R1,79 million in ten years’ time, would not have earned you a real return on your investment if inflation had been 6% per year over that time.

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