Property ownership is regarded by many as being an essential element of any investment package. Property more often then not is a growth asset and, whilst its market is cyclical, it moves independently of the shares listed on The JSE Securities Exchange South Africa.
Direct investment in retail, commercial and industrial property used to be the preserve of large institutions, corporations and wealthy individuals. Smaller investors were excluded by limited capital and insufficient time and expertise to manage the investment. The chance to invest directly in property, through acquiring units in property-owning investment vehicles, has been developed in an alternative investment concept, namely Property Investment Company.
What is Property Investment?
Property Investment comprises the assembly of a group of investors who pool their funds to invest in a Company whose sole asset is a commercial, retail or industrial property. The investment is made through buying units in this Company.
Through proportionate share of income together with such future capital growth as may be reflected by the increased value of the units held by the investor, he will share in the profits and losses of that property and enjoy the benefits of net rental growth.
Investors receive income on their investments regularly in arrears from the net rentals paid by tenants occupying the property. Net rental growth is dependent upon rises in gross rentals, offset by any ancillary increases in the costs of operating the property.
Investors also share in the costs, which could also rise, of owning that property. These may include rates and taxes, commissions payable to leasing brokers, tenant installation costs on reletting, maintenance and the administration fee for managing the property for the investors.
Capital growth is achieved by the increase in unit value and is realised on the sale of the investment. As with any property investment, the real benefits are gained over time and Property Investment are long-term investments. They perform best over a minimum period of five to seven years.
Advantages of Property Investment
Property Investment gives the investor an opportunity to acquire a unit in valuable commercial property, through the purchase of a unit in the Property Investment Company, thereby giving access to the financial advantages of a sizable and profitable investment.
In addition to this, the following advantages can be highlighted:
Property Investment tend to be sound medium- to long-term investments, offering returns comfortably in excess of inflation.
Investing in shares and loan units has the advantage that for an investor below the age of 65,
R11 000 will be tax free.
With the right property and the right management, Property Investment units offer a low-risk investment.
Stable Income Growth
They offer an income that escalates annually as rentals escalate according to the lease.