Investment guru backs residential property

As far back as 2010 Wakefields Real Estate has been beating a positive property market drum, pointing out that market conditions are excellent and that buying opportunities abound.  In January Keith Wakefield company chairman again said that in his four decades of real estate there had not been a better time to buy property than now.

Three weeks ago billionaire Warren Buffet,widely regarded as one of the most successful investors in the world, gave his thumbs up for property buying when he appeared live on CNBC's Squawk Box.

Buffet should need no introduction. But for those who do, Wikipedia states that he is known as the oracle or sage or wizard of Omaha and the primary shareholder, chairman and CEO of Berkshire Hathaway. He is ranked among the world's wealthiest  being number one in 2008 and third in 2011.

Opening the show he was asked his opinion on the value, at current levels, of the US stock market which had performed very well over several months. The point was the Buffet had started buying American shares in 2008 when the Dow Jones was below 9 000. He made it public then in an opinion piece published in The New York Times which was headlined `Buy American. I am’. Since then equity prices have doubled.

You have to invest in something, he said. In the US if you have money in your wallet, in the bank or Treasury Bills it’s invested at zero. His view is that shares in a diversified group of leading companies, held over a long period, are going to outperform paper (money) or nonproductive assets.

He then said that single family homes were also cheap. If he had a way of buying a couple hundred thousand single-family homes and  could find a way of managing them (unlike apartment blocks these single units posed an enormous management problem) he would load up on them and take out mortgages at very low rates.

Five years ago people could not buy homes fast enough because they thought the price would rise and now they are not buying them because they think they are going down in price. Currently interest rates are far lower than they were then, he said.

Asked what his advice would be to a young individual investor, who had a choice between buying a first home or investing in stocks, Buffet said that if he was going to live in the house for the next five to 10 years he would buy a home and finance it with a 30-year mortgage. If he was a handy type he would buy a number at distress prices and find tenants. “It's a leveraged way of owning a very cheap asset now and I think that's probably as an attractive an investment as you can make now,” he said.

Wakefields executive believe you can’t get more of an endorsement for buying property and owning your own home than this!

Certainly SA is not America and our investment rate is not zero. But our prime interest rate is at an historical low and some current predictions are that increases may only happen in 2014, depending on the pace of economic recovery. Property prices are low. Who knows if they will go lower, but if the demand and take up continues at the current pace, price increases are inevitable.  In the long term, 5 to10 to 20 years, property has provided very good returns, said Myles Wakefield CEO Wakefields Real Estate.

Looking at Buffet’s 2008 New York Times opinion piece he repeats his investment philosophy: Be fearful when others are greedy, and be greedy when others are fearful.  That year was one gripped with fear, yet he was investing.

Buffet said he can’t predict short-term movements of markets. “What is likely, though, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over,” he said.

29 May 2012