While warning that the easy money has been made, independent financial adviser Magnus Heystek shares what he has been doing recently … converting rand into hard currency to invest in beaten-down US stocks. In the fascinating podcast with BizNews founder Alec Hogg, he also revisits his property journey, explaining how mistakes that cost him big at his infamous Hartbeespoort Dam disaster helped him make excellent returns in other carefully selected areas. While Heystek is still keen on some property developments in SA, he warns that returns are likely to be modest and incomparable to the fortunes made during the 2002 to 2008 boom. – Alec Hogg
Magnus Heystek on a bad property investment mistake
I’d like to see somebody who has been in the financial markets as long as I, not having made mistakes. We all make mistakes. This one was particularly bad in the sense that I did everything wrong as far as this investment was concerned. I was swayed by emotion, by the bull market that was punted by everyone. The newspapers, media, radio, seminars were all talking about building a property empire. I fell for it. I was persuaded by a family member who told me we were going to make a lot of money if we bought property, built a house and sold it or rented it. Of course, it was right at the top. Thousands of other South Africans are still paying the price for that. I hear people saying daily that they cannot sell their property and it’s quite true. It took me 13 years to sell that property, even though I put it on the market about eight years ago. The thing with property is – especially a stand that does not produce an income – you are liable for the rates, taxes, levies, and it can affect your credit record. This is just a lesson to the younger investors. Whenever there is a little upturn in the property market, there are people who go around saying: “Property is the way to make money and build an empire.” I’m saying, forget about it, it’s not, especially in South Africa with the macroeconomic environment we have.
On past property boom markets
From 1977 to 1980, we had a commodity boom. The economy was growing at 6% and in that period, it was easy to make money. Then soon after the ‘94 elections, the property market was incredibly strong up to about 2008. A lot of people made a great deal of money, myself included. I bought in places like Dainfern despite being told it’s so far in the veld. We made some good money. However, in 2008, the rules changed as far as property is concerned. Property does well when the economy is growing very rapidly. And secondly, when money is freely available and the banks are eager to grow their mortgage books, which they were doing in 2002–2008. Thirdly, money is cheap. That is why the United States, United Kingdom, Australia and New Zealand are having enormous boom markets. The interest rates in those countries are 1% or 2%. Money is so cheap, you can buy a second or third property and build an empire. South Africa’s interest rates have been way too high to try and do that trick. Bond rates are between 8% and 10%. You don’t stand a chance as far as interest rates are concerned.
On potential property developments in South Africa
There are certain areas in the Western Cape, Franschhoek, George and the Wilderness that have a demand for property. However, property is not an easy way to make money. There are two things against you. Firstly, the high cost of money in South Africa. Secondly, the dramatic increase in rates and taxes over the last 10–15 years. It is not only residential property that is suffering from this; the commercial property guys are suffering even more. They are saying it is physically impossible to make the kind of returns they used to with interest rates at these levels and, more importantly, administered prices rocketing through the roof. Administered prices – which, in effect, is an additional tax on property owners – are killing the growth and we are all paying the price. I checked some prices myself over the weekend. I looked at Pecanwood, for instance, and the areas around the dam. The prices there today are the same as they were 8–10 years ago. People who have been banking on that capital appreciation in preparation for their retirement are finding that it is actually a drag on the capital. It is destroying many retirement dreams. I can buy the same house I sold in Pecanwood 10 years ago for the same price. So, someone who bought it from me would have had no capital appreciation in 10 years. The top end of the property market has virtually come to a standstill. Price movements are far below the inflation rate if you take it over a 10–12-year period. That has affected a lot of people.
On Zimbali, a fantastic property development site but not simply a shortcut to riches
Zimbali is fantastic. I’ve been on the sites and think it will be a good development over time. However, it will still not be the shortcut to riches that a generation or two were told. The macroeconomic environment and the political environment are against us. Northern KwaZulu-Natal, Umhlanga up to Ballito have some wonderful developments but it is still not a shortcut to riches like it used to be, and definitely not if we compare ourselves to other countries. They are having tremendous property booms and there are political factors that mitigate against that. In my experience, too many young professionals have left the country 10–20 years ago, even today. They are or would have been the buyers of the properties that are selling now. However, they’re in other parts of the world. They’re buying in New Zealand. Yes, buy property to live in, raise your kids, but don’t think that it’s going to make you money in the current circumstances. It has to be in the stock market, either in SA or preferably, in my view, offshore.
On Sasol being among the top 10 shares, a lucky strike for South Africa
I kind of suspected I would get the results. I asked my techies to have a look at the top 10 shares in the top 40, which offers a good reflection of what has happened in our market since March 2020. The world was coming to a standstill, Covid-19 disrupted everything and boom, suddenly something changed. Not even the smartest experts in the world could have foreseen what happened since then. The Sasol price went up 823%, followed by MTN and Platinum shares. Sasol was the outstanding share as a consequence of oil going up. Eighteen months ago, oil was trading at below zero. There was a situation in the market where they were paying the oil producers to protect the oil that was so cheap and then something just happened. South Africa just got very lucky. Not only in the stock market, but also from a revenue perspective. The ANC government was suddenly flush with cash. Therein lies the danger, that this will be seen as a permanent and sustainable situation. Investors must be very careful.
Read also:
- The trillion rand property collapse 2.0 – Magnus Heystek’s R500k+ Hartbeespoort mistake
- Mauritius more attractive as SA property investments collapse
- Piet Viljoen – ‘Investing in SA residential property doesn’t make sense.’
