Sanlam : Direct Property vs. Unit Trusts

To try to answer this question, the figures should be thoroughly investigated. The following table shows the annual average returns of shares (measured by the FTSE / JSE All Share Index), money market yields (SteFI Composite Index) and direct residential real estate (average prices of South Africa). This draws a comparison between the potential returns that an investor in the stock market can earn in a bank account versus direct property.

Once the figures are taken into account, it is clear that an investment in equities over the long term provides the highest yield. Also, we saw that direct property prices experienced a boom period during 2002-2007 with an average annual return of 18.2%, and began to show signs of slowing (2008-2016) by delivering an average return of 3.8%.

However, the choice is more complicated than simply considering returns over different time periods. Every South African knows that Cape Town property growth will be more attractive than property yields in smaller towns up-country. So geographical location must be taken into account. If the average annual return of the Eastern Cape (7.8%) is compared with that of the Western Cape (9.3%), it is clear that location plays an important role. This phenomenon is further accentuated with the stagnation of the overall residential property market compared to metropolitan areas, especially Cape Town which still experiences a boom in house prices.