South African property crushed the JSE Top 40 and S&P 500 over 21 years

An analysis by Daily Investor showed that the South African Property index outperformed the JSE Top 40 and the S&P 500 over 21 years.

Rising interest rates have brought property investments into the spotlight, with many asking whether it is a good investment.

Many stories raise questions about the value of real estate as a long-term investment compared to equities.

One commentator highlighted that Warren Buffett bought his house in Omaha in 1958 for $32,000, which is now worth $650,000.

“If he instead slept on Charlie Munger’s couch and invested those funds into Berkshire Hathaway, it would be worth $1.2 billion,” he said.

It is an extreme example of stocks outperforming real estate, but it is not applicable across the board.

To compare the value of South African properties as an investment, Daily Investor built a property index that could be compared to the S&P 500 and the JSE Top 40 index.

We used the FNB house price index to track house prices. It is an index compiled by FNB which tracks the changes in house prices in South Africa.

The index tracks the price at which individual properties were bought and sold to measure house price movements.

It offers accurate house price appreciation data but does not provide any data on returns generated from rental income.

To better understand the return from buying a house as an investment, rental income and costs should be added.

Daily Investor used data from the Global Property Guide, which provides rental yields for different residential property types in South Africa. The average rental yield was 8.82%.

To simulate a property’s returns from capital gains and rental income, we built a return index that included an adjustment for maintenance costs, levies, and rates and taxes.

To track the performance of the property index, we compared a R100 investment in the property index, the JSE Top 40 index, and the S&P 500 index.

The S&P 500 investment was adjusted for currency fluctuations, and the investment was tracked from 2001 to 2022.

R100 invested in the S&P 500 grew to R737, the JSE Top 40 investment grew to R777, and the property index delivered the highest returns at R910.