Real estate investments in South Africa have grown more complex over the years, and many are becoming more anxious about its near decade long slump
How Do Real Estate Investments Compare to Other Investment Strategies
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Real estate investments in South Africa have grown more complex over the years, and many are becoming more anxious about its near decade long slump.
Property prices for low- and middle-income markets have grown in the first quarter. The value of new mortgages has risen by 8%, according to SA Home Loans. This is the highest in eight years. However, a closer look presented by the FNB Property Barometer paints a different picture. In nominal terms, year-on-year residential properties grew by 4.1%. But when adjusted for inflation, the prices of residential properties in the country are, in fact, decreasing.
While real estate remains one of the most attractive markets in the world, many are venturing into other investment strategies to diversify and maximise capital gains. If you’re only familiar with property investments, here’s a definitive guide on how it compares with other investment strategies:
Stock Market
While both are based on ownership, stocks and property investments are widely different. Stock markets are a bourse where you buy and sell shares of stocks, bonds, and securities. A data driven comparison on Towards Data Science points out that, against real estate investments, stock markets are cheaper, have higher returns, and are less risky. While stocks can be bought and sold in milliseconds, it takes at least sixteen weeks in South Africa to offload a real estate property. This means it’s harder to take advantage of real-time trends. The costs alone in property investments, including the new risks from the recently enacted Property Practitioners Act, overshadow the potential earnings compared to stocks.
Forex Market
The foreign exchange market is the polar opposite to real estate markets. The Forex market is the decentralised trading of currencies at a given price. Unlike the meticulous and complex requirements that go into real estate investments, the Forex market has low capital requirements and transaction costs. You gain profit by predicting movements of a currency against another.
The Balance highlights that currency trading is a 24 hour market which means whenever there’s an open market, you’ll be able to trade. Compared to immovable properties, traded currencies are liquid assets —easily convertible to cash. In fact, FXCM explains how the Forex market is the largest liquid market in the world with a daily trading volume of over $5 trillion (SAR 73 trillion). Similar to how banks can back real estate investments, you can leverage your capital for higher gains in Forex through brokers.
Gold Markets
Considered as safe havens, gold and precious metals markets are more resilient to economic downturns and recessions. Like real estate, gold is a long-term investment. In tough economic times, investors tend to exchange cash for gold —pushing gold prices higher. As it’s less volatile compared to stocks, many investors advise putting gold at the foundation of your investment portfolio. As opposed to property values, however, the value of gold changes more often.
Despite the risks involved, investors are becoming more comfortable with real estate as it’s more tangible. As a passive income, the monthly rent that you get from properties can look more enticing than quarterly dividends from stocks. Nonetheless, a diversified and recession-proof portfolio remains the best investment strategy.