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Sunday, July 1, 2007
Pool resources

Young investment savvy South Africans should look at the property market as a first step towards building an investment portfolio, and a key step towards personal and financial independence.

Property sales continue to rise and first time home-buyers, many of whom are aged between 22 and 32 years, have driven a sizable chunk of this growth says Craig Deats, National Insurance Sales Manager at MortgageSA .
As a long term investment, property offers security because it is less volatile than other asset classes. In periods of continued house price growth such as currently seen in South Africa, property investments can appreciate significantly in value.
However Mr Deats cautions that due to the size of investment, sacrifices are involved. “Investing in property can be a route to riches for young people, but it involves sacrifices. The first is to ditch the idea of buying a new expensive car and rather settle for a cheaper second hand model.”
For example, he says, “a new sporting hatchback can cost in the region of R255 000 with a monthly installment of no less than R5 000 over a period of five years. But if you can afford R5000 a month, that same amount will allow you to service a R440 000 bond at current interest rates. And although a bond normally has a lifespan of 20 years, each monthly payment takes you one step closer to owning a valuable asset. The sporty hatchback, however, depreciates by between 15%-20% the moment you drive it off the showroom floor.
A recent survey in the United Kingdom by the Office for National Statistics showed six in ten men and four in ten women aged 20 to 24 still lived with their parents.
Mr Deats says he would not be surprised if the figure was higher in South Africa. “In the UK the average price of houses being bought by first-time homebuyers had increased a massive 204% in the past ten years, while the increase in average income for adults aged 20 – 24 rose by 92% during a similar period.
“While we have seen similar property increases in South Africa, we have not seen similar wage increases putting property out of reach of many individual youngsters,” he says.
In order to escape home, most young people rent as a group. He says they should investigate the option of buying a property together instead. “If two new graduates with a joint monthly income of R15 000 pooled their rental money and considered buying a property they would qualify for a R400 000 bond. The monthly repayment at an interest rate of 12.5% would be R 4 500 over a 20-year period.
“Properties costing less than R500 000 fall into the lower price range, and this is where most young people can start off. This is the key to building an investment portfolio, and returns yielded from property tend to show gains in the long-term,” he points out.
Here are some of the tips for youngsters who want to invest in property:
 Don’t buy an expensive sports car while staying at home
 Don’t rent an expensive apartment.
 Investigate which suburbs were less expensive, but showed signs of a boom in the near or distant future. This is where you are most likely to get strong capital growth.
Make a point of staying informed about the property market: read, research and ask questions. Consider borrowing money from family members to raise the initial deposit. They may be happier to lend you the money knowing it is being securely invested. 

Copyright © Insurance Times and Investments® Vol:20.6 1st July, 2007
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