An interesting article this morning on Moneyweb.

One of the beautiful things about owning a property is that the property’s price does not appear in the newspaper every weekday (and in bold on the weekend) and so their owners are unable to constantly track the minute-by-minute value of their investment and they are not constantly able to compare the growth (or decline) in the value of this investment with their other investment assets.

I say this is a good thing because, when it comes to owning property, an investor is compelled to take a long-term view.

If I had to tell a client that their investment had been doing worse than money in the bank and, more seriously, worse than inflation in recent times, they may be rather concerned and wonder why they are in it in the first place. Especially if they were to look at their other long-term investment (their pension fund) which continues to grow at a rate comfortably above inflation.

Whilst “the housing market” is hardly homogeneous, and regions, areas and parts of “the housing market” will have done better or worse, the housing market grew by about 6% in 2015 and 5% last year (roughly in line with inflation and a little less than the return on money market deposits).

FNB property strategist John Loos expects house prices to grow by about 4.7% in 2018, whilst Absa Home Loans property analyst Jacques du Toit expects growth to be more muted in the region of 3.5%.

In recent times property (both listed and residential) has been a well–performing asset class, buoyed by generationally low interest rates across the globe. This has undoubtedly led to complacency that the values of property only go up and that owning property gives better returns than investing your money.

In my experience, when there is complacency there is danger. When people start to extrapolate recent performance (even 10-year performance can be “recent” when looked at in relation to long-term averages) into eternity and beyond, a healthy dose of realism can always help out. What has happened in the last 10-years is often not likely to happen in the next 10!

Like nearly every investment, the value of property does not always go up and it also is not an asset class which perpetually beats inflation year-in and year-out. Banking on only one asset class is much riskier than investing across many.

Maintaining a well diversified portfolio over time helps to manage these risks. Property is a good investment but it’s not a one-way bet all the time.

 

 

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