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