Debt Traps, Property Rights

It is difficult to talk about investing without considering the current state of the South African and global economies. The bad news flow seems inescapable and the prospects for the economy are not great. Gill Marcus, outgoing governor of the Reserve Bank, has laid bare a plethora of problems facing the country, including a depreciating currency, high unemployment, an ever increasing current account deficit, the R50 billion Eskom bailout, load shedding, inflation, labour unrest and policy uncertainties. Business and consumers are under huge debt strain while SARS wants to intensify tax collections.

The collapse of African Bank has added fuel to the fire for indebted consumers, who are also the tax payers now expected to bailout this situation. Read this article, Debt Trap Myths Busted, on this issue.

Meanwhile, on the real estate front, there is still great uncertainty regarding land reform, while the new Rental Housing Amendment Bill has huge implications for investors. According to Michelle Dickens of TPN, an estimated 75% of landlords are micro-landlords owning 1 – 10 rental properties and do not have access to facilities and expertise that larger investors and managers have.

To protect themselves, investors will have to be more thorough in the selection of their tenants while strictly following process.

There is pent up demand for properties, particularly in the high-end areas of Cape Town, Johannesburg and Durban. While the 2001 – 2006 property boom has certainly not returned, investors from the UK, US, Africa and Germany, as well as local investors, are putting their
cash back into property, while prices are still relatively low. Most of the deals are cash, so this uptick should be treated with caution. Nevertheless, it is positive news for local estate agents who have suffered a long drought of sales since mid-2007.

It’s so important to control your mindset in a tough market. Your inner world – the sum total of your thoughts, dreams and emotions – must be understood and controlled to be remain proactive given the realities of the world.

Prosperous investing

Neale

“Credit is a system whereby a person who can’t pay, gets another person who can’t pay, to guarantee that he can pay.” – BENJAMIN FRANKLIN