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13 Oct 2012

In today's market, which by the banks' accounts, is bereft of fireworks, one needs to keep sight of the fact that slow growth is the unavoidable result of the world-wide financial crisis. However, it would be incorrect and unnecessarily upsetting to boot to assume that property has lost its beanstalk magic. What one needs to remember is that property is cyclical, and accordingly, once it hits the bottom, it will, at some time, turn upwards.

And while the general expectation is for growth of two to three percent in 2012, this doesn't draw a distinction between the lower and middle priced areas, which are showing reasonable activity, and the over-heated markets ( real luxury and leisure )
which are not.

Regardless of the economic climate, property has the ability to deliver good shorter-term and long-term returns in the form of rental yields and capital growth respectively. Those living in their primary residences can also enjoy the security of tenure that goes with being a homeowner as well as the fact that their monthly mortgage

Bond payments are building long-term equity along the same principle as a savings plan. What's more, they ca borrow against their properties in the event of an emergency or should they need to fund their children's education.
It's also a excellent form of retirement security.

Real estate cycles are synonymous with peaks and troughs. The longer one rides the wave (and the minimum recommended holding period recommended holding period by most experts is five to seven years),the better the reward.

This is evidenced by Old Mutual's most recent report on diversification, which shows that over a 10 period culminating in December 2011, South African real estate grew 20,5 percent, compared with 15,7 percent local equity December 2011, South African real estate grew 20,5 percent compared with
15,7 percent local equity growth, 11,4 percent diversified growth and 8,7 percent South African cash.(Foreign equity growth under whelmed with growth of just 1,1 percent over the same period.)

The moral of the story is that owning a property is as good as having money in the bank. It will grow in value, and it will stay stable (if you fix your rate) as opposed to rentals, which typically increase each year. What's more, your home is visible, tangible and manageable by you, not a salaried asset manager who is unlikely to put your best interests above his own.

Finally, remember that as the Economy picks up, so will the residential property market. So buy in the best area you can afford, don't buy more house than you can afford, to maintain or pay for and

PSG Consultant Philip Van Wyk