Property vs ALSI

[ClintZA]

I just did a little exercise for myself which I shared on FB regarding the value of R100 invested in the JSE ALSI in 1998. A friend involved in property claimed property would be a better option, so we took a look. I thought I would share it with everyone here.


JSE ALSI
On 1 August 1998 the JSE All Share Index closed at 4,581.
On 1 October 2012 the JSE All Share Index closed at 37,302.

If you had invested R100 in the JSE ALSI in 1998 it would now be worth R814. A 714% return.

He then said if you had put that R100 (for comparative purposes) into property it would be worth so much more now. The only way to compare was to check out average house prices in 1998 compared to now and this is what I found.

Average house price in 1998 is R221,284.
Average house price in 2012 is R1,057,825.

Your R100 invested in an average property would now be worth R478. A 378% return.

I also then argued that for the house option you would need to factor in maintenance costs. Of course, you need to also argue that you would be getting rental income on the house but if you never paid cash then you would also be servicing a bond and paying interest on that.



As a proviso I did add that all is not rosy with any investment. If you had invested your R100 in May 2008 things would have been very different :

On 1 May 2008 the JSE All Share Index closed at 31,841..
On 1 February 2009 the JSE All Share Index closed at 18,465.

If you had invested R100 in the JSE ALSI in May 2008 it would have been worth R58 in February 2009!

BUT if you had not panicked and just left that money there, and not taken it out, it would now be worth R117 again in October 2012.


This is why we constantly refer to time in the market and not timing the market. Also the reason to be greedy when others are fearful and vice versa.

 

[syntax]

so what you are saying is that if you invest wisely and have a touch of luck on the JSE you can make more money than on property

Breaking news, higher risk can yield higher reward

 

[Dolby]

... and when you guy that house upfront with transfer etc, you lose R10.00 - so your property is only worth R90.00 ... R430.20 at the end

... and then again when you sell, you'll be losing a fair share to commission - so that R430.20 is more like R420.00

 

[ClintZA]

so what you are saying is that if you invest wisely and have a touch of luck on the JSE you can make more money than on property

Breaking news, higher risk can yield higher reward

Nope, just comparing the two with tangible numbers from the last 14 years. The numbers were interesting to me. If they do not interest you then no worries, move along.

 

[ClintZA]

... and when you guy that house upfront with transfer etc, you lose R10.00 - so your property is only worth R90.00 ... R430.20 at the end

... and then again when you sell, you'll be losing a fair share to commission - so that R430.20 is more like R420.00

True. I did mention to him that there were a few "unpredictables" in the housing option. If you are relying on the rent you need to ensure tenants at all times, the rising of interest rates would affect your repayments and you will not be able to immediately raise your rent, maintenance as mentioned etc.

 

[patrick]

Could you estimate the value of the property with the going rate for rentals added in. I'd love to know that answer as that's my current dilemma.

 

[Drunkard #1]

Oh pa-leeze. Your comparison sucks. Include rentals, maintenance, rates, levies and the tax effect (including allowances), and dividends and brokerage fees for shares, otherwise don't waste our time. Also, either you've the cash or you don't - not cash for one and loans for the other.

On a related note, one property is really isn't ideal - the risk is way too high. You need several. This is why stocks are popular. Houses ideally need a minimum of 10 bar investment. Stocks can start with 10 k.

 

[ClintZA]

Um, Drunkard#1, responses like yours are precisely why it is hardly worth the effort of going to those sort of lengths for some geeks on a public forum who are hardly likely to appreciate the effort. Feel free to provide all the requested comparisons yourself if you are so keen, or cough up some money for my time and I'll gladly oblige. If you had taken the time to read you would have noticed mention was already made of a number of missing data points.

 

[Drunkard #1]

I already know that property is a better investment, so I won't be wasting my time or money with comparisons. I'm just pointing out to people that grossly incomplete comparisons like yours aren't worth the paper they're written on, and can lead (like in this case) to the wrong conclusions being reached.

 

[ClintZA]

Drunkard, I think you will find there was hardly a conclusion drawn. I even shared the major risk associated with an ALSI investment by showing what would have happened to you in 2008. I shared facts. I also used a number which is unlikely to be able to buy you a house but for just slightly more, around R200 for some asset managers, you can in fact get access to the ASLI.

If you have absolutely no interest in adding some value to the discussion then why bother at all? Get over yourself. Or share your apparently vastly superior knowledge with others.

EDIT: Oh yes, and for the sake of the 100% accuracy you yearn for let's not forget to include estate agents commissions (as mentioned by someone else) and the transfer costs and legal fees in buying the property from the calculation too. We would not want to leave out a few cents here or there.

 

[supersunbird]

Have/do both...

edit: And before you all forget, you can invest in property via a property fund, no need to own physical properties if you dont want to...