Eurozone yoyo analysis paralysis

Posted On Tuesday, 31 January 2012 02:00 Published by
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In South African investor circles a close and often anxious watch is being kept on economic developments in the Eurozone

This according to Rob Lawrence, National Manager of the Rawson Property Group’s bond origination subsidiary, Rawson Finance.

“Almost daily,” says Lawrence, “I come across a new view on this subject.  These are often either highly optimistic or very pessimistic - but it has to be recognized that the eventual outcome in Europe will affect South Africa - and South African property - as much as any other country not actually in Europe.”

Should the Euro collapse, says Lawrence, the current recession will last anything up to a decade.  He, himself, believes that there is so much at stake that Germany, France and possibly the Scandinavian countries will take sufficient action to protect the Euro, although they may be forced to implement a two tier value system for it.

What surprises him, however, says Lawrence, is the ‘paralysis’ that has affected many South African investors who have become inveterate Eurozone watchers.

“They admit to being extremely worried - but do absolutely nothing about it,” he says.

What should they be doing?  Experience, says Lawrence, shows that in uncertain times, like the present, investors cannot do better than to move into the traditional safe investment classes, gold or property.

“If one looks at most previous recessions,” he says, “it becomes clear that rents, although always affected adversely, fare better than other asset classes because home buying dwindles.  Furthermore, those who do buy property when prices are low (for example, as many did after the 1976 riots and in the late 1990s when interest rates went through the roof) are invariably seen later to heve been very shrewd.”

The problem with advice to investors to shift to bricks and mortar, says Lawrence, is that leading spokespeople for the property sector have been saying this for a long time.  As a result it has almost become one of those hackneyed messages to which no one pays much attention.

Nevertheless, Lawrence repeats, those investors who are concerned about Eurozone prospects should be hedging their bets by moving a certain percentage of their assets into property - and they should be doing this with relatively low gearing.

“This is already taking place in the USA and Europe and I am convinced that South Africans should now be following this course,” he says.

If, says Lawrence, the worst case scenarios do become a reality, obviously rentals will ‘take a dip’ - but history has shown that they will continue to give a not unsatisfactory yield.

On the other hand, if the European governments face their problems squarely and succeed in implementing the necessary cut-backs, thereby sparking off a recovery, property values will soar because in the current conditions demand is building up - but cannot be satisfied.

Publisher: eProp
Source: RPG

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