Real Estate Investor Magazine South Africa July 2015

Source: Prudential and I-Net. REITs have significantly outperformed property on a nominal and real basis because both property types have identical tax treatments. Source: www.tradingeconomics.com and South African Reserve Bank turnover, this can lead to having to outlay cash to fund other expenses or savings that your rental income ordinarily has covered. REITs also have vacancy risks and these cannot be avoided. REITs generally have management companies that assist in the alleviation of vacancies. Rental income versus REIT distributions Both rental income and distributions from REITs are not guaranteed. REITs, however, are affected by market sentiment coupled with market reputation that significantly reduces the likelihood of decreased or no distributions. Diversification benefits With the price of property and all the other associated costs of buying, diversification of any sort is exceptionally difficult. REITs provide immediate diversification by the nature of the various property portfolios. These often consist of investments in a number of property types, including industrial properties, warehousing, www.reimag.co.za offices, shopping centres and many more. To further diversify, they are in different geographical regions (this includes offshore exposure) with different opportunities, tenants, growth possibilities, income streams and capital appreciation potential. It is simple to gain more exposure to particular property types by investing in REITs that have more exposure to the property type you favour. Liquidity Rental properties are not liquid. It can take months or even years to sell a rental property. If you need to sell it quickly to raise cash, you might need to drop the price below the current market value to attract a buyer. REITs, by contrast, are liquid investments, can be easily bought and sold online. They can easily be converted to cash timorously and without paying excessive fees. RESOURCES Alpha Wealth JULY 2015 SA Real Estate Investor 41

Real Estate Investor Magazine South Africa July 2015 | Page 43