Look for capital growth in your home investment
Category Blog
Gauteng homeowners – both existing & aspirant – should not be daunted by the low base that has persisted in residential property prices. They should rather focus on the growth of the capital portion of the investment at the time of purchase. This is a point I made 10 years ago – & it still applies today.
Remember, whether we are paying rent or a bond, we all have to live somewhere. For a buyer, it is more relevant to calculate the growth of the capital invested, than establish the value growth of the property as a whole. It is the capital growth that counts.
The silver lining
It is the extent of the growth of the capital portion of the home purchase that is the silver lining of the transaction. Simply put: If you bought a R2-million property – by way of a R400 000 deposit & an 80% bond of R1,6-million – & the investment grew in value by no more than 5% a year (in line with inflation), the home would achieve a value of around R2,55-million over five years.
The point is that your initial personal capital investment of R400 000 would thus have more than doubled over the five years to close to R1-million – while the value growth of the property as a whole would have been only 35% over the same period!
Fortunately, we are now starting to emerge from a particularly difficult & challenging economic climate.
Homework is important
My long-standing advice to buyers in market circumstances such as we now face remains unchanged: “Do your homework thoroughly, but understand the price cycles. That way you will know that now is fundamentally a good time to buy – after ten years of no real growth. Buying a home is a lifestyle thing – & if you see something that really fits your lifestyle & your families’ needs, act now. You will be buying at a discount anyway. By holding on you may miss out on the ideal home.
Author: Ronald Ennik
