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Property News 1

Build your wealth through property

Property remains one of key building blocks to wealth creation and the current depressed property market represents a golden investment opportunity for buyers.

The old adage “invest low and sell high” applies to any type of investment and property is no exception.  With property at relative historical lows, now is a great opportunity to buy cheaply.

Broadly speaking, one can invest in property directly, by buying a house, an apartment or by investing in the listed property sector.  Listed property investments include property collective investment schemes (previously called property units trusts) and property loan stock companies that are listed on the Johannesburg Securities Exchange (JSE).

One of the chief advantages of investing in physical property – that is bricks and mortar – rather than listed property is that you buy something tangible.  You can visit your flat, house or commercial building and furthermore you have full control over that property.

You can, for example live in the property, let it out for the long term or even furnish it and make it available to holidaymakers. If you buy a commercial building you can choose you mix of tenants, and lay down the terms of the lease agreement.

If you loathe admin and don’t want to become involved in screening tenants and dealing with maintenance matters, you can make use of the management services offered by estate agents or commercial property administration companies.

While managing a property can be tedious, the flipside is that by being in directly in touch with your investment, you can identify problems and risks and act quickly to deal with these problems and mitigate the risks.

A popular form of direct investment these days is buying into a sectional title hotel in which you buy a room or apartment in the hotel and when you do not use it yourself you put it into the rental pool of a professional hotel management company.  You can make use of the unit for your annual holiday and place in the hotel rental pool for the rest of the year thereby making money out of your holiday accommodation. In this way you can mix business with pleasure and this method of acquiring and funding a holiday accommodation is far more cost efficient and a much wiser investment than, for instance, a holiday home which stands empty for 90 percent of the year.

With listed property, you buy either units in a property unit trust or shares in a property loan stock company. In so doing, you buy into a pool of properties which is managed for you. You have no say the appointment of the management company or the portfolio manager although you should do investigate before you invest so that you are comfortable with the quality of the portfolio and the entities that will manage your investment.

Listed property offers benefits of diversification and liquidity (the ability to cash in your investment quickly and easily). When you buy into a property unit trust or property loan stock company you invest in more than one property and in properties in more than one geographic location thereby reducing the risk should one property perform poorly because, for instance, the tenant reneges on his lease agreement.

Being able to cash in or sell your investment when you need to is an important consideration and while you can sell both directly-held property as well as listed property,  it is the ease with which you can do so that is a factor to consider.  To sell your listed property shares or collective investment scheme investment, you would contact your stockbroker and because trading in these investments is facilitated by the JSE, it is relatively quick and easy to sell. A flat or house, it may take months to sell and selling in a depressed market in which banks do not readily lend money, selling your property can take even longer.

Before investing in property, do your homework, understand the investment into which you will be buying and then sit back and let your investment work for you by earning a passive income from the rental returns. When you sell, you can potentially make a profit thereby enjoying a double whammy on your investment.

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