Real Estate Investor Magazine South Africa February 2014 | Page 18

COVER STORY Ref inancing frees up capital to acquire another income-generating and capita l growth-producing property, which can also be refinanced in time to access to equity created by the capital growth. Investors can repeat this system as many times as their risk appetite allows, building up portfolios of incomegenerating and capital growth-producing properties that create true wealth, without ever having to invest a cent of their own money. It is so effective, that investors could own 15 properties in just 15 years. Of course, for this system to work, investors need to invest in areas characterised by solid current and future capital growth and a strong, ongoing rental demand, and require access to suitable finance at an acceptable interest rate. Unfortunately, in South Africa, implementing this wealth creation system has become evermore difficult. The financial institutions are making it extremely difficult to obtain suitable finance and this is also suppressing growth in property values. Scott Picken, CEO of IPS, notes that this is because the f inancial industry in South Africa is not progressive. Locally, the value of the property asset is not considered sufficient security for a loan – the banks are only interested in the borrower’s ability to pay the exorbitant interest that make up the bulk of the repayments on the loans. And because the laws in South Africa favours tenants, the income generated by a property asset is not considered in the finance application, severely curtailing the ability to obtain finance to acquire income-generating and capital growth-producing properties. Fortunately, there are other investment hotspots where the finance and regulatory environment is more investor-friendly and support, not suppress, investors’ efforts to create wealth. Says Picken: “In the US, for example, it is far easier to obtain financing, since the value of the property, as security for the loan, and the income-generation ability of t H