Property is a terrible long-term investment

I believe that businesses are great investments while houses are poor ones, so I'd rather rent the latter and own the former.

In every country on the planet the stock market has produced higher returns than residential property over the long-term, meaning those who rent and regularly invest their money in shares instead of property would be richer than those who slave to pay off their homes.

In 2003 The Economist magazine found that between 1980 and 2003 shares drastically out-performed residential property in all economies. According to Ipac executive chairman Arun Abey, in the United States between 1890 and 2004 (before the sub-prime meltdown led to house prices plummeting across the board) inflation-adjusted home prices increased by an average of only 0.4 percent annually. In Amsterdam, where space has always been at a premium, the same meagre growth was seen over a period of 350 years!

According to Abey, one of the reasons shares always outperform property in the long run is that demand for property is derived from the success of business. The risks of investing in property are understated while the returns from investing in property are over-stated. Amongst the property myths widely held are that property values are not volatile, prices almost never fall but if they do they never fall far, property always keeps pace with inflation and the ever popular 'you can never go wrong with property'.

The effect of these myths is that property prices are bid to inflated values that leave little room for future growth when compared to shares. Shares will therefore continue to out-perform residential property over the long term by a considerable margin.

Investing in property is expensive, yields poor returns, consumes lots of time and is much riskier over a long term than investing in a professionally managed, diversified share portfolio.

My advice? Rent rather than buy! Invest the funds not used for a down payment or higher monthly repayment in shares, especially where you intend to keep the property for less than four years.

Rent if you rue risk

The South African property market is shot to hell and many homeowners are seeing the value of their houses slide. However, if you rent there's no risk of losing any money that you invested in a home.

For homeowners the stakes are enormous should they struggle financially while a renter never faces the threat of foreclosure. Being evicted from a flat is nothing compared to the devastating fallout that comes with losing your house.

More good reasons to rent

• You don't need a good credit record to rent.

• It makes little sense to buy if you're experiencing job uncertainty or you work for a company that can transfer you at relatively short notice.

• By renting you can save the money you would've used for a down payment as well as the difference between your monthly rent and the bond repayment, enabling you to eventually buy a house without the need of a huge loan.

• Budgeting is a cinch as your rental stays fixed for the duration of your lease.

• South African property prices are falling and will continue to do so until interest rates start coming down. By renting you can hold out for better prices.

• Rent and you'll have more freedom to leave a bad job or take a chance on a new business.

• By renting you'll have peace of mind as you don't have to worry about interest rates or housing bubbles.

• You'll have more money for fun stuff!

Renting is not a dirty word! Go ahead; you'll enjoy the breathing space...

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