Consensus in the South African property sector is that the rate of growth enjoyed by investors over the past three or four years will slow.

Considering that, according to Absa, house price growth was at 21.9 percent in 2005 on top of growth north of 30 percent the year before — it’s hardly surprising that predictions for growth in 2006 are closer to ten percent to 12 percent.

That level of growth is still better than the return you might get from cash.

It's a long-term game

Now more than ever before though, the South African property market is a long-term game. Buy now and you will have to wait considerably longer to see the sort of growth registered in the local market between 2002 and 2005.

My biggest investment regret over the past four years is not pausing to think before selling a property that I loathed.

It’s a long story, but in summary, the roof had leaked since day one and it took nine months of running battles to get the issue resolved.

By the time the property was sold I was delighted to see the back of it. I was simply grateful to have made enough in a single year to cover the transfer costs and come out with enough profit to move my furniture to a new house.

Since then, the particular units in a good area of Johannesburg have doubled in value. I could have rented out the unit — which after the nine months of battling developers was as good as new and have turned a tidy profit.

Instead I took a short-term view — was terrified by the potential debt burden of having two bonds and took the cowards way out. That decision cost a fortune.

First principles

It brings me to a principle I would like you to consider when you buy property.

Our first instinct when buying a house for the first time is to look for a “starter home” something affordable from which we can upgrade our lifestyle.

So we buy a one or two bed flat, deck it out with cool stuff and two years later when it is so full of stuff that we can barely move, we flog it and move to house number two and fill it full of stuff and then to the third and maybe the fourth.

There are two scenarios here.

Either buy the best possible property you can afford the first time. If you can’t get the best, then commit to staying there as long as possible — always flinging money against the bond.

Having two assets

When you move, and if you have succeeded in reducing your debt sufficiently, you will be able to rent out the property and buy a better second property. Now you have two assets and you have the privilege of someone else paying for it on your behalf.

This is particularly useful when property owners get married. What many people do is that they sell both of their “starter homes” and invest jointly in a better property.

Great if they plan to stay in the big house forever, but not so good from the point of view that if they kept one or both of those running as a business and got a less flashy property as their first marital home that they would be so far ahead of their friends and colleagues within five years.

Buy now, sell when?

What is particularly concerning is listening to people who like to talk about property investments. Many speak about property in the same way they talk about shares. “Buy now, sell tomorrow after giving it a lick of paint and sanding the floors.”

Those days are gone for the average fixer–upper. What has happened over the past year is that land prices have played the most spectacular catch up. So nowadays, even an unspectacular house on a sizeable stand will achieve a decent price.

While we might respond emotionally to a particular house — land values have rocketed — especially in areas where properties are big enough for sub-division.

While a well renovated house will achieve considerably more than a dilapidated hovel — the gap between the two is probably smaller now than five years ago. Good quality land in a prime position is showing great value.

A large number of new-built apartments are still going up in major centres — fuelling demand in the buy-to-let market. This is a particularly interesting sector right now.

Now and then

Let’s say you had bought yourself a funky apartment five years ago for R500 000 and rented it for R5000 — you would have a yield of one percent. Buy that same apartment today — it’s likely to cost you R1-million and you are unlikely to achieve a higher rental — in other words you will get a yield of about 0.5 percent on your investment.

If you borrowed the full amount — you will be chipping in on the value of your bond, plus you will be liable for tax on the rental, but that’s another story.

Bottom line: Don’t be in a hurry to trade up. Buy the best property in the best area you can afford and whack the debt as hard as you can.

When it is time to enjoy your new-found status as a person-about-town, you should be able to live like a king in property number two with rental income from number one to help fund the lifestyle you would so richly have earned.