FINANCE
BY FRANCOIS VIRULY
Work Out The Return
On your investment
B
efore undertaking a property investment,
the investor not only has to decide on the
expected return, but equal importance
should be given to whether the focus is on capital
growth, or the income-generating potential of the
property. This means deciding on how the total
return will be derived from these two sources.
On deciding an appropriate return, the starting
point or benchmark is usually the treasury or long
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Commercial Handbook 2013
bond which reflects the risk-free rate. Investment
markets add an appropriate risk premium to the
risk-free rate ref lecting the characteristics of an
investment. Studies suggest that the risk associated
with a property investment lies between the bond
and equity markets.
Property investments are typically characterised by
poor levels of information and liquidity, and longterm risks associated with urban decay and changing
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