Real Estate Investor Magazine South Africa February/ March 2020 | Page 47

S
tatistics SA recently announced that the country’s
economy has shrunk by 0.6% in the last quarter of
2019. Of the positive contributions made by various
sectors in the GDP growth of South Africa, the real estate
sector grew by 1.6% in comparison to the previous quarter.
Among the many factors contributing to the sectoral
growth, is the growing demand for housing - as well as the
increase in the number of outstanding household mortgages
(which was standing at 4.6% in July 2019.) Many people are
starting to shift towards the property and real estate sector as a
means of reaching their wealth goals, and ultimately reaching
full-blown financial stability. As many may want to pierce
through the all-wealthy and one of the positive contributors to
the country’s GDP, the real estate sector, they can make use of
the different investment models offered by the sector, either
for start-up or investment maximisation purposes.
When the term ‘investment’ is mentioned, people tend to
think of it from a monetary perspective. It’s commonly believed
that investing can only be made in the form of bank finance,
while investing could also mean buying an income-generating
asset that will last long and keep making profits.
Primary property investment
Investing in property is another form of wealth security. It’s a
sustainable ‘wealth guarantee’ that many want to be in. People
often apply for home loans which has proven to be an effective
investment tool over the years. This form of investment for
funding is often referred to as a primary property investment
tool.
Offshore buy-to-let investment
The real estate investment sector is broad enough for investors
to invest in other jurisdictions in (almost) the same way they
would if they were to invest in their home countries. This is
all in the name of seeking sustainable, secure and maximised
wealth opportunities. Though expensive for start-up investors,
for affording investors, investing in buy-to-let property
offshore can be a lucrative investment tool for investors to
take advantage of. There are various other “side-benefits” to
offshore investing, such as obtaining citizenship. It is extremely
important for investors to understand that the principles that
apply to local buy-to-let properties apply to offshore too.
Listed Property Investment Funds
Listed property funds are funds invested in real estate. In this
investment fund, properties are managed by listed property
companies which are essentially buy-to-let specialists and the
yield generated (less management costs, etc) are distributed
between investors. Locally investors can invest in listed
property through Real Estate Investment Trusts (REIT) or
Property Exchange Traded Funds (ETF).
Real Estate Investment Trusts (REITs)
Making up a significant 10% of the top 100 companies listed in
the JSE in 2019, SA Real Estate Investment Trusts are proving to
be the most consistent-listed business entities in the country -
earning the most wealth and value for shareholders. These trusts
are among the few companies that have made the highest
compound annual growth-rate over a period of five years.
What is a REIT?
A real estate investment trust is a company that owns (and in
most cases operates) income-producing real estate. REIT own
many types of commercial real estate, ranging from office and
apartment buildings to warehouses, hospitals, shopping centres,
hotels and the timberlands. One benefit of REIT for everyday-
investors is that they provide the opportunity to own a portion
of real estate which generates dividend-based income.
Investing in south Africa is often said to be an unsafe
investment venture for sustainable and secured financial
growth. This is due to the state of economic affairs in South
Africa, with the economy often showing signs of volatility
and sometimes being rated and mounted to junk status.
However, chairman of the SA REIT Association and CEO of
South African operations at Growthpoint Properties, Estienne
de Klerk believes that “SA REIT have performed relatively well
for investors in a very challenging business environment. This
solid performance shows that listed real estate is a defensive
investment through cycles. REIT creates affordable access to
property investment.”
Benefits of investing in a REIT
It cannot be disputed that investing in a REIT at this time of
economic uncertainty in South Africa is considered a wise move,
as it’s one of the most consistent investment tools with frequent
superior turnovers. It is especially wise for South African investors
to make use of the investment opportunities that come with
investing in the tool that will allow them to invest in the publicly-
traded stock. Investing in REIT guarantees great returns, capital
gains and gives investors access to large property assets.
Superior returns
Being listed as part of the 100 top-performing companies in the
JSE is an indication that REIT are economically trustworthy and
consistent. With that comes the Superior returns for investors
in this investment tool.
Income and capital gains
The advantage of real estate investment trusts is that they
aim to deliver capital gains and an income. Figures from as far
back as 2014 provided by Grindrod Asset Management, have
shown that in years when prices have fallen, income will still be
generated. REIT are a dividend-paying means of participating
in the real estate market. South African REIT pay at least 75% of
taxable earnings available for distribution to investors each year.
Protection of your money
Many people get trapped in property syndicates and lose a lot
of money - if not all of it. These syndicates are often marketed
and run by organisations that seem to be reputable and above-
board. Investing in the real estate sector through REIT is safer
as there are extra layers of oversight, not only from regulatory
authorities but from investment professionals – like analysts.
REIT are more transparent than other forms of collective
investment schemes that aim to pool investors funds to buy
large buildings.
SOURCE Stats SA
SA Real Estate Investor Magazine FEBRUARY/MARCH 2020
45