Zuma vs Buffett
Category Articles for Investors
In a recent Businesstech article entitled "What South Africa lost in the "9 wasted years" under Zuma" economist Magnus Heystek mentioned a number of salient points, one being:
-"Residential property market has been in a 10 year bear market. Prices have declined by 22% in real terms over this time. In the 3rd quarter of 2018 new mortgage applications dropped by 16% - and not a single word about this reported in our mainstream media."
As property investors one can be forgiven for getting on the "doom and gloom" bandwagon when you apply those numbers to your portfolio.
Of greater interest to me is answering the question "What can be done?"
I enjoy reading anything written by or about Warren Buffett and whenever a strong perspective shift is needed, I look to this very wise and humble man. Much of what he believes, and practices can be summed up in these few points:
A loss is only realized when you sell. Now is not the time to sell unless the fundamentals of the investment or its environment have changed. If you believe the property is a sound investment that will benefit from a strong correction (when it comes) then hold on, allow the rental income, that has grown a few percentage points a year, to service the asset. A different economic setting will provide significant leverage in the adjusted value.
If you need to get out of the investment, cut your losses and do it now. This is easy to understand, much harder to put into practice. If you believe there is no coming back from the current economic environment, take the loss. Estate Agents have plenty of stock at, currently, unrealistic prices. You are just prolonging the pain.
Be an independent and contrarian thinker. Buffet made some of his biggest and best investments in markets that had most everyone else running scared. If you are a die-hard property investor, look for the opportunities, the new angles, imagine the market with a new set of circumstances. Spend the brain power positively or not at all.
For me, imagining the strong year on year growth in rental popularity and the modest middle-income growth unique to S.A. paired with a resurgence in economic confidence and housing growth in the near future is the only way to go.
Until then it is Rental Management Business as usual.
Author: Jacques Erasmus