An analysis of diversification by location in the South African property market
Master Thesis
2016
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University of Cape Town
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The purpose of this dissertation is to investigate whether a property investor could diversify their portfolio by investing in the same property class and type throughout three different cities in South Africa. Furthermore, the study aimed to achieve this by providing an in-depth analysis of property cycle activity in South Africa and investigating how different South African cities react to the national property cycle. Cape Town, Durban and Johannesburg were chosen, as they are major cities in South Africa. The time frame used is the 2001 to 2009 property cycle with specific reference to office space. The timeframe does not cover the property cycle over an extended period where factors may be different from the ones concerned here. The outcome of the study will help to provide an understanding how the three different cities reacted to the national property cycle using variables such as but limited to gross rentals receivable, total return, income return and vacancies. The results of the study will help in making investment decisions, especially for investors who may want to diversify their portfolios across different cities within the same country. The methodology of this dissertation will be based on a comparative analysis using mainly Investment Property Databank (2013) data subsequent to a literature review. The findings are based on Investment Property Databank (2013) statistical industry performance data. The conclusion will be drawn from the results. The primary motivation for this research stems from investors' need for a greater understanding of diversification within the property cycle to improve investment decisions. The primary objective achieved was to contribute to the understanding of the predictability of the property cycle, which can assist in the decision making of a property investor looking to diversify by location in their property portfolio. Whilst this finding was not the primary objective, this dissertation revealed that there are synchronicities between the Central Business District and decentralised office markets of the three cities of Cape Town, Durban and Johannesburg.
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Shisana, F. 2016. An analysis of diversification by location in the South African property market. University of Cape Town.