Real Estate Investor Magazine South Africa September 2014 | Page 52

LISTED

South African

REITS

Significant advantages for investors

R

eal Estate Investor Magazine chatted to
Laurence Rapp following his appointment as
the Chairman of the SA REIT Association,
about South African REITs and the advantages this
investment offers.
Q: What advantages do REITs offer property investors whose direct
property investment activities are currently curtailed by the bank’s
stringent lending criteria?
LR: When compared to a direct investment in a
residential or commercial buy-to-let property, REITs
offer property investors a number of advantages
deserving consideration. Firstly, REITs offer investors
significant opportunities to diversify their investments.
Instead of being exposed to a single property in a
single location with a single tenant, as would be the
case when investing directly in one buy-to-let property,
the investor’s risk is diversified across not only multiple
properties and multiple tenants, but also across
geographies – including offshore real estate, and across
commercial property sectors (office, industrial, retail).
Secondly, an investment in REITs is liquid, and
should the need arise, the investor can access funds
invested in a REIT within days, as the shares are
easily tradable. An investment in a physical property is
highly illiquid, and investors could wait weeks and even
months to sell a property.
Investors should also consider the transaction costs
involved in acquiring a buy-to-let property, including
transfer duty, among others, and compare these to the
relatively low costs associated with a REIT investment.

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September 2014 SA Real Estate Investor

Laurence Rapp

As costs have a significant impact on the return on
investment, the low entry and exist costs involved in
REIT investments should not be ignored.
Furthermore, investors in REITs enjoy lower
risk, as the management of the properties are the
responsibility of professional property managers and
therefore investors do not have the hassles and costs
associated with the management of tenants or the
property. Similarly, investors also benefit from the
expertise of highly qualified fund managers in respect
of the acquisition of investment properties.
Currently, REIT investors can expect yields of 8%
and higher, and given the factors mentioned, on a riskadjusted basis this compares well with returns on a
direct investment in a buy-to-let property.
Q: What allocation to property would you recommend in an
investment portfolio?
LR: Most asset consultants would recommend a
weighting of 10% or more in a balanced portfolio.
Many investors make the mistake of considering listed
www.reimag.co.za