Warren Buffett Quotes-Property Investment lessons (The Bugle)

Warren Buffett, known as the Oracle of Omaha, is the world’s most successful investor (currently he is worth US$44bn) and has been an inspiration to millions of people around the world who have paid attention to what he says, and profited as a result. On 18^th June Bloomberg reported that Warren Buffett had bid US$3.85 billion for a mortgage business and loan portfolio of a bankrupt company called Residential Capital LLC. This is interesting as it indicates that he believes that there is significant upside potential in the American residential property market. Buffet’s Berkshire Hathaway Inc. group has prepared for a turnaround by buying a brickmaking business and expanded its real estate brokerage business it has. So with Warren Buffett preparing for the future of the property market in the US, and he is currently 81 years old, what are you doing? Here are seven great quotes from Warren Buffett that can guide our decision making: (1) “Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it.” It is a great time to acquire a buy-to-let property now while the percentage of buy-to-let buyers is at a low of 8% in South Africa. You will have an excellent choice, will be able to secure the best possible pricing from motivated sellers and will not be competing with a horde of other buyers. (2) “Our favourite holding period is forever.” Take a long-term view. At 81 Buffett still is. You may not be around forever, but your children and the following generations will. Secure an income yielding property now, with 50% debt and 50% equity, and you will soon be in a cash positive situation. (3) “Risk comes from not knowing what you are doing.” If you are unsure about where best to invest, seek out those people who are knowledgable in the market and ask their advise. (4) “I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful.” It is an exceptional time to be greedy in buying properties at depressed prices. (5) “Never count on making a good sale. Have the purchase price be so attractive that even a mediocre sale gives good results.” In property, you make your money when you buy, rather than sell. Buy low enough to lock your future profit in today. (6) “Price is what you pay. Value is what you get.” Recognize the difference between the price and value, and learn how to see outstanding value in the property market by using a realtor that can provide detailed factual information on comparable transactions. (7) “Someone’s sitting in the shade today because someone planted a tree a long time ago.” Invest in that property today so that your children can benefit in the future.

June 2012: Property Market Focus: Economic Indicators (The Ballito Mag)

Are you feeling confident? Depends whose asking. Images of a younger Clint Eastwood squinting at you or a RMB Bureau of Economic Research (BER) economist posing the question may influence the answer. The FNB BER Consumer Confidence Index has remained similar over the past three quarters but the RMB BER Business Confidence Index jumped from 38 to 52 between the fourth quarter of 2011 and the first quarter of 2012. Before we become too euphoric, the press release of 7 June 2012 by the RMB BER indicated that in the second quarter they had recorded a drop in this measure to 41. The five sectors measured that make up this index are Retailers, Manufactures, New Vehicle Dealers, Building Contractors and Wholesalers. Retailer’s confidence measure fell from 61 to 39, the lowest level in two years, which can be attributed to lower sales volumes across all types of retailers. Manufacturing confidence decreased from 47 to 29 indicating that they doubt the continuation of the previous quarters strong growth in turnover and production. New vehicle dealer’s confidence declined from 73 to 65 due to lower sales but they still remain the most confident of the group. Building contractors confidence deteriorated from 31 to 24 index points, much of which is attributed to commercial building activity declining, rather than residential building. Lastly, the Wholesaler’s confidence actually increased from 48 to 50 on the back of improved sales. Had Estate Agent’s been included in this index, we may have skewed the results upwards a bit, as our sales for the first and second quarters of 2012 have been significantly higher over the 2011 figures. Seeff Dolphin Coast was awarded, in May 2012, with the coveted  “Seeff Licensee of the Year 2011” title, measured on a national basis and across their market size category. This is indicative of the growth the Dolphin Coast continues to enjoy with families migrating into the area en masse.

As realtors and professionals who are intimately involved in the property market on a daily basis, it is in our interest to be aware of the economic trends that have a direct impact on buyers and sellers. The commercial banks in South Africa each have their own measure of house price movements, and although the measures to vary the trends are most important. As South Africa’s largest mortgage bond provider, ABSA have reported in their June 2012 House Price index review that the pace at which house prices have been deteriorating is slowing. They expect subdued price performance for the rest of 2012. ABSA measure house price changes across small (80-140 sqm), medium (141-220 sqm) and large (221 – 400 sqm) homes. The real (inflation adjusted) 2012 year to date and year on year percentage changes across these three broad categories respectively has been published at -17.4%, -5.6% and -5.0%. This provides sellers with a clear motivation that an attempt to increase pricing in the current market will not result in a sale. The June 2012 release of the FNB House Price Index indicated that nominal house prices grew by 9% in May 2012, while inflation adjusted house prices grew by 2.3%. The month-on-month house price growth figures do however indicate a decreasing trend from 1.4% in January 2012 to 0.96% in May 2012. As long as monthly changes are decreasing our year on year figures will level off or begin to decrease. Although real house prices as measured by FNB were -12.8% lower in April 2012 compared to their February 2008 peak, real prices were 69.9% higher than July 2000 when this index was started. This helps us to understand that over a longer period of time, house price growth has been exceptional and well beyond the average inflation rate. As long as the underlying fundamentals of more and more people wanting a limited stock of available properties continues, house prices will always have to be bid up to match the prevailing demand. Although the ABSA and FNB house price figures appear to be very different, to trend and message is the same: House prices will be flat for 2012.

The overall South African economy, according to Stats SA’s Gross Domestic Product numbers grew by 2.7% in the first quarter of 2012, which is down from the 3.2% in the previous quarter. This indicates an economic soft patch setting in, but the good news is that inflation threats have moderated. Our consumer price inflation is still at 6.1% but the producer price inflation (the cost of goods leaving the factory doors) has decreased significantly from 10.7% in September 2011 to 6.6% by April 2012. For those buying imported Samsung LED’s or Canon cameras you will be pleased to know that the producer price index for imported goods has slowed from 16.4% in December 2011 to 8.5% in April 2012.

For those who have recently struggled to secure mortgage finance, the only consolation I can offer is that you are not alone. The total household mortgage advances, according to the South African Reserve Bank, grew as a year-on-year measure by a mere 2.3% in April 2012, which was only marginally up from the 2.1% for March 2012. There has been growth of 7.2% in total household credit, and even though mortgages make up 64.5% of this, it indicates that South African households are using this credit to fund expenditure on items other than homes. ABSA’s forecast is that mortgage growth will remain in single digits territory for the remainder of 2012. We can think of mortgage finance as the fuel that fires a property market. As mortgages extended by banks grows the demand for homes will grow and house prices will then recover. For now cash remains king and provides buyers with the best opportunity to secure properties at the keenest possible prices.