Real Estate Investor Magazine South Africa July 2015

COVER STORY commercial sector of the property industry, although the numbers are considerably bigger. In fact, many investors prefer commercial property investment, for numerous reasons. These include greater returns; long-term lease contracts with fixed escalation rates; finance based on the value and returns of the property and the lease contract, not on the investor’s personal finances; less onerous regulation favouring tenants; and shorter bond periods which means a commercial property investment will come to maturity much earlier than a residential investment. Commercial investing can range from super-large shopping complexes to corner stores, but can also include a wide range of other properties such as offices, shops, warehousing, hotels and more. Of course, commercial property investment requires expertise and investors are well-advised to enlist expert assistance from reputable local property brokers to ensure they understand the market dynamics for a specific area, including the demand and vacancy rates for the various types of commercial properties. Financing a commercial property is also more challenging, with banks requiring larger deposits, a solid business plan and returns on the commercial property of at least 10 - 12%. Not surprisingly, given the stagnant growth in the South African economy, the local commercial property market is currently subdued. According to the latest Rode’s Report on the SA Property Market, the performance of rentals in top suburban office nodes in Johannesburg is poor to modest. Rentals in Pretoria and Durban decentralised are faring slightly better, with the best performance coming from 16 JULY 2015 SA Real Estate Investor decentralised Cape Town. Growth in industrial market rentals are also well below the growth in replacement costs, and industrial rentals have contracted in real terms. Nevertheless, in certain industrial nodes, tenant demand outstrips supply. Careful selection of the right property and the right tenant has seen numerous investors acquire excellent local commercial investments. Investing in offshore commercial property is another option. Globally, and particularly in the US, investors prefer specialised investments in various subsectors of commercial property, including hospitals, hotels, cellphone towers or renewable energy assets such as wind farms. South African investors have access to very specialised offshore commercial investments, for example, in self-storage facilities or parking facilities, in fast-growing offshore nodes. STRATEGY THREE Listed property [ Essentially, listed property companies are large-scale buy-tolet specialists operating mainly in the commercial property sector. Just like residential buy-to-let investors, listed companies acquire a property using finance (gearing) and then rent the property out to tenants, earning both an ongoing, inflation-linked income as well as capital growth over the long term. “Investors can invest in listed property through Real Estate Investment Trusts (REITs) or Property Exhange Traded Funds (ETFs).” Listed property companies are experts at the buy-to-let investment model and have professional teams who optimise every aspect of the property portfolio. It is no wonder then that the returns in local listed property shares and indices on the Johannesburg Stock Exchange ( JSE) over the past five years and more have exceeded 20% per annum. www.reimag.co.za

Real Estate Investor Magazine South Africa July 2015 | Page 18