Market Update

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Turning Back the Clock to the Seventies and Eighties

real estate in seventiesThe property market has seen more than its fair share of detractors. From being called a dead investment class in the early 90s to being declared an overheated market that cannot sustain- there has been a continuous wave of criticism. The good thing is that it has challenged and in fact, ridden the wave beautifully.

Property market in the seventies

Turning back the clock, we find that the interest rates have fallen from an unimaginable 17% two decades ago to a buyer’s dream zone of 2.5%. You will do well to remember that the property market is very dynamic and what is true today may become an absolutely redundant statistic in no time. Let us look at it this way. In the 1960s and up till the 70s, there was wealth to be made from practically thin air. Banks did not want to lend but you were always in the position to beat the interest rate with the capital growth on the cards.

Market in the eighties

80s continued with high capital growth but the inflation was just as high and the holding costs were exorbitant; what with interest rates hovering around the 13.5% mark. Those who could hold for eternity stood to gain. I know there will always be arguments against property holding; experts suggesting that holding offers very high nominal growth but in terms of inflation-adjusted growth, the figure slides down to a routine value.

Real value growth

And yet, I am pressed to believe that those who bought in the 70s and are selling today will definitely benefit from real value growth, too, no matter what the increase in household income over the years have been. More about the 80s- inflation devalued debts but inflationary pressure undid the benefit. I tried to recall those times in particular because most of our internet readers came a little later than this time on the planet.

What do you think of the real value growth versus the nominal value growth debate?