Real Estate Investor Magazine South Africa August/September 2019 | Page 43

LISTED PROPERTY A RIET is a Real Estate Investment Trust which allows you to invest in the ever-growing Property market and there’s “no catch” or “twist” because it allows the average Joe (you and I) to actually invest in physical prop- erties and make guaranteed returns, without owning the actual property. IMPORTANCE It’s important to note that REIT’s are actual Trusts and work as such, meaning there are many beneficiaries who are holders of participatory shares in the Real Estate of the Trust. REIT’s are governed by the Real Estate Investment Fund Act of 1960. This Act requires the REITS to pay 90% of their annual earning to you as a shareholder. SOUTH AFRICAN REITS South Africa typically offered only two forms of public traded property investments: (PLS) Property Loan Stock companies and (PUTs) Property Unit Trust with unique tax exemptions and regulations. With an introduction of the new Section 25BB to South Africa’s Income Tax Act and other regulatory changes brought on by the JSE, REITs will be more tax transparent to benefit of beneficiaries. Some of the new set of listing requirements include Property value exceeding USD 300mil; Maintaining debt below 60% and Establishing a Risk committee which makes the investment case for listed REITs safer and stronger . TIPS FOR INVESTING IN REITS 1 Invest with Cloud Atlas via the AMI Real Estate Fund, while this is not a REIT it wraps up listed property shares across the African continent where there isn’t a REIT framework, allowing you to diversify. 2 Look populations changes and macro- economic indicators like interest rates to determine the prospects of the REITs you want to invest in. 3 REITS are traded publicly on stock exchanges and have also IPO’s, so its important to open a share trading account or speak to your financial adviser. 4 REIT’s offer high liquidity meaning you can trade the shares without having to buy and sell physical property. More unique benefits of South African REITs is that they are not be subject to capital gains tax on the disposal of immovable property; no Securities Transfer Tax is levied on the transfer of shares in a REIT, if a REIT holds a direct, undivided share in the property it could distribute its rental income via a “qualifying distribution”. CURRENT MARKET IMPACT Typically many South Africans have growing concerns regarding country especially with respect to Eskom being able to keep the light on, with that said the property market is set to increase after as slump in the past two years, but one should look for REIT’s offered in SA that global exposure especially to Africa and Eastern Europe. We see GRIT Income Group, one of the AMIRE constituents, as a power-house which plans to diversify further into Africa to tune of at a market cap of U$ 411milllion. We also Nedbank CIS expanding into east Africa with R1 billion to Kenya’s Centum Real Estate and further up north Africa we see Cairo looking to develop residential accommodation in New Cairo which is a very exciting development for growth in the property market in the slate of slow global economic growth. ADDED BENEFITS OF REITS • Greater diversification - investors are purchasing a piece of a large estate portfolio. If one was purchasing a property themselves, the buyer would only be able to finance a single property rather than multiple. • Increased liquidity - REITs can be sold and purchased like a stock and the investor has more liquidity when compared to investing in a single property. • Decreased time and management responsibilities. As an investor in REITs, one is not responsible for being a landlord as there is a professional management team that handles this responsibility on behalf of investors. • A secondary source of revenue for investors. Investors will be provide six monthly dividends and capital growth. Investors are advised to be aware that rental income and distributions from REITs are not guaranteed. REITs gather their rentals from a diversified portfolio in order to reduce the risk of zero distributions. • Reduce costs - compared to purchasing a single property which may cost over R1- million, a minimum investment in a South Africa REIT is one share. The cost of this share is dependent on the SA REIT company and could possibly be below R10 per share. According to the South African REITs Association, REITs has been the ‘best performing asset class in the country for the past 15 years. Potential investors are advised to increase their wealth portfolio through REITs as it will increase their real estate exposure. SOURCES Cloud Atlas Investing SA Real Estate Investor Magazine AUGUST/SEPTEMBER 2019 41