The Rand:Dollar debate – Why YDL believes USA property is the best property investment around

Much talk currently surrounds last week’s weakness of the Rand, and its subsequent strenghtening (at the time of writing it was at R9.85). Who knows where it will go next as exchange rate forecasting is an uncertain business. We spoke to a top economist and his view is that, “in a market primed to negativity, where political/labour factors behind the weakness of Rand have not been fully played out, there is potential for further slippage. However the weakness has been overdone on fundamentals and there is pullback potential. I would say some pullback on a three to six month time horizon would be reasonable to expect. Stabilising the labour relations environment and limiting damaging electioneering on the road to 2014 will help sustain a pullback”.

However, if one took a 6 to 7 year view most forecasters would be banking on a depreciating trend in the Rand.

We believe that USA property provides a solid investment proposition over the medium to longer term. The Atlanta market, where we are focused, has turned and prices are increasing. The bargain opportunities are in the “foreclosed” market, where stock is decreasing rapidly, and prices are increasing steeply.  We’d urge investors to take advantage of this opportunity before it is too late. And, to take a medium to long term view on their investments, based on fundamentals.

We are often asked how USA property compares to South African property. This is a difficult and complex comparison to make as many variables come into play. But, we’ve done a simple, but nonetheless very interesting comparison that gives food for thought, based on an exchange rate of R10 to the dollar.

At R10:$1 what would approximately R1m buy you in Johannesburg as compared to Atlanta and what would your returns be?

We chose two properties located in areas with similar demographics and distances from the economic hearts of each city.

One is a property in Cobb County, Atlanta (bought for R930,000), and the other a property in Sunninghill, Johannesburg, bought for R950,000.


Income is everything

YDL believes that the most critical measure of “value” is the income that the asset generates over time. If the income is solid, the capital growth will take care of itself.

For a spend of R930,000 your asset in the USA will yield you a 9.2% income return, whereas the comparable asset in SA (in this example) will yield 5.7%.

The USA property was bought at only 56% of replacement cost, implying that its inherent value is higher. Even if it takes another 10 years for the market to recover in the USA and even if there is a another “crash” along the way, at these sorts of discounts, the future growth of your asset in the USA shows much promise.

The above example does not take gearing into account. In the USA there are currently no sources of bank finance available to foreign investors. Your investment therefore needs to be in cash. The opportunity, we believe, is in no way diminished by this. In fact, one of the major reasons for the low prices in the USA is the lack of financing for foreign borrowers. As soon as financing becomes available to foreigners, prices will jump. At the moment though, prices are very affordable to South African investors. Buying a 3 bed 2.5 bath town home in the USA for only R930,000 is incredible value. YDL believes that direct property investment in the USA is a superb, first world, hard currency investment and one of the best ways to diversify your portfolio.

YDL to visit Atlanta next week to buy houses

Anton and Deon are visiting the Atlanta from the 10th to 20th June. In our first week we will be buying land to develop and during the second week we’ll be buying buy to let properties for our investors. Contact us now to find out more. If you’d like us to be your “eyes” on the ground whilst there and if you’d like to take advantage of the opportunity to purchase a high yielding buy to let investment for you during our trip, please contact us without delay.