Property as the primary component of an investment portfolio is what sets apart the wealthy from the less affluent – and the figures prove it.

This is the unequivocal viewpoint of two experts working for major SA property companies.

Jason Lee, Rawson Auctions’ legal and corporate advisor and the author of two best selling property books, said that at an early stage in his career he had become aware that property as a chief investment component is what separates the wealthy from the not-so-wealthy.

Quoting the American “Wealth Coach”, Dr David Shaper, Lee said: "It is of interest that the investment strategy is basically the same for the wealthy and the super-wealthy, they use all sorts of financial instruments but the basis of their wealth is real estate and their investment in real estate gets larger and larger as you go up the wealth ladder."

Shaper, added Lee, has said that high net worth individuals (HNWIs) almost invariably own three, four or more homes as well as a variety of income-producing apartments and commercial outlets and “raw” land pockets.

This, said Lee, is corroborated by Knight Frank's latest High Net Worth Individuals Survey which reveals that the top 3% of the world's wealthiest individuals on average have 36% of their wealth in property as against 26% in stocks and shares.

With interest rates the lowest in many years and with property prices still well off their 2007 peaks as a result of last year's slump, the current time is propitious to invest in property assets, said Lee.

“Sellers are now a lot more realistic about their selling prices and this gives fantastic buying opportunities across the board,” said Lee.

"I really do not want at the end of 2010 to find myself saying to clients with whom I have recently dealt, ‘Well, I am afraid you did miss the boat’.”

"Even then, however, will be a reasonably good time to buy because the long term trend in South African property has always been upwards. But the present time could not be better for investing in property and, as I see it, there can be no point in delaying taking the plunge."

Andy Collett, Pam Golding Properties’ (PGP) manager for the Eastern Cape, Garden Route, Karoo and Kalahari regions and a former investor in the highly sophisticated London property market, says in South Africa there has rarely been a better time to invest in property. “Certainly this is true for the past 7 years or so. The reasons are that there has been an adjustment in pricing to the past inflationary years and prices are now more realistic for the investor. The cyclical trend in property is swinging upward again and is conducive to investing now.”

Collett says the average individual does not acquire wealth by means of their salary. “The acquisition of property, normally their own home, is the beginning of this process as, over time, and given the correct fundamentals, they can sell their initial property at a profit and invest again having accumulated some equity in the process.

“If this process is repeated successfully over time, they build a significant equity base and the property can be used as security for leveraging further investments.

He says all balanced investment portfolios will have immovable property/real estate as their anchor.

“The very name gives a clue as to its significance in this portfolio. Whereas equity investments do provide huge opportunities for growth from time to time, property remains the bedrock of the portfolio as it is not as influenced by short-term fluctuations in investor sentiment and hence equity market fluctuations.”

He points out that in a recent survey done by Fortune magazine in the US, over 90% of all CEOs and chairmen of the top companies stated that they had acquired personal wealth through real estate investment.

But how does one start investing in property and then sustain it?

Collett says if you own your own property, normally as your primary residence, and you have built up some equity, you should be in a position to start investing in further properties. “Ideally, you are looking for property that is in a good position and can generate rental income sufficient to service any mortgage that you may raise.

“Position and price are the key factors to consider. Does the property have potential for future growth? Remember that you are looking to the medium- and long-term benefits of capital growth as well. Beware of overpriced properties for the location that you are looking in.

“Also consider carefully the upkeep/maintenance requirements needed to maintain and improve the property for attracting tenants and eventually buyers when you want to sell.”

Mike Greeff, CE of Greeff Properties, says one should err on the side of caution, conduct thorough research and be level-headed when deciding to invest in property. “When buying a home to live in it is inevitable that the purchaser will be swayed by some emotional factors. However, when buying as an investment, reason has to play the dominant role, and usually does with shrewd investors.”

“Astute buyers never allow themselves to be rushed into a purchase. They take their time and meticulously study market conditions before making decisions. They will in most instances let a property go rather than pay above the price they believe it to be worth, even when they like it.

“When they do put in an offer it will usually be below the asking price. This is fair enough because in most Western economies homes are still selling at 5% to 12% below the asking price.”

“If they see the market rising and offers becoming more competitive they change their tactics and adjust their pricing accordingly.”

Most, he added, study the property trends and almost always purchase well before the market hits the top of a cycle. “Once that point has been reached they tend to be markedly reluctant to invest until conditions are more favourable. – Eugene Brink

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