There is no doubt that some time in our lives we all yearn to own that piece of land we can call our own. A yearning that seems to go back awhile, back to an era where the Americas were handing out vast tracts of land to keen and willing immigrants who braved the unknown and were daring. Not much has changed, and the property environment for first time homeowners can be an unknown quantity without proper guidance and advice. When it comes to considering property investment there is the misnomer that people believe they are currently invested in property because they own and are paying off their primary residential house (in which they live). If you looked at it another way you could say they are invested more into interest rate movements than anything else. The problem is that when you sell your house for a profit, you never really get to realise that profit because essentially you utilise that gain in order to purchase another house to live in. Granted, in your twilight years, once you have paid off the home loan and you begin to downscale, your house can form a very valuable and essential part of your retirement plan. Strictly speaking if you owe nothing on your property, are earning rental income or own commercial or industrial property then you are invested in property. Owning these types of investments comes with their own problems and barriers to entry. What gets lost sometimes when talking property investing is listed property shares. Property has an important place in any good well-balanced portfolio – it’s how you access it that can make the difference. What does listed property offer the investor? Listed property shares are made up of property companies that are listed on the JSE. Income is derived from property shares that offer the potential for a secure, escalating income stream. Capital growth is achieved by investing in quality shares that show potential for an upward share price movement. By utilising investment platforms that offer listed property funds various possibilities present themselves. For the dynamic up-and-coming investor this affords them the opportunity to get involved in developments (shopping malls and industrial parks) that they ordinarily would never have exposure to. Not only that, but they also get to participate in the various property cycles that the industrial and retail sector enjoy. For the conservative investor closer to retirement, property shares can be utilised as a good income generator. Start up costs It is also relatively easy to start investing in listed property funds and doesn’t take the time that is needed when investing in traditional forms of property. Investors can also dictate how much they invest. Listed property funds minimums are a lot more attainable than start up costs for commercial, industrial and residential property. Liquidity In the event that money is needed elsewhere, funds can be disinvested with relatively good turnaround times. Traditional property is, by its nature, very illiquid whereas with listed property, monies are paid directly into the clients’ bank account seamlessly. Transactional costs of exiting are reduced significantly as the costs of selling property itself are avoided when selling the property shares. Maintenance No maintenance is required when investing in these property funds nor is there the risk of tenants not paying monthly/annual rentals. In addition the concern of not finding tenants to occupy the property is neutralised. The property management company takes the hassle out of property investment. Expertise The fund manager is an expert in this particular field whose sole job is to analyse and track movements and trends in the property sector. It can be beneficial to leave the technical analysis up to the professionals. How to access listed property funds: There are a number of ways you can access these funds:+ Retirement Annuity (RA) - A Retirement Annuity is a long-term savings contract with significant tax advantages. Property funds can be accessed using Retirement Annuity platforms. The proposals in the recent Budget Speech by Minister Trevor Manual is also providing even more tax advantages with the removal of the Retirement Fund Tax on RA’s, thereby putting more money into investors retirement savings. Investors however will still be taxed on the income they draw from their investment once they retire. + Endowment - Endowments are very similar to retirement annuities and offer a range of listed property funds. The endowment also offers greater liquidity than the Retirement Annuity. An endowment is funded with after tax money but the insurance company pays any income tax due at the individual investor’s rate of 30%; therefore, in terms of current revenue practice, all withdrawals are treated as after-tax amounts and no additional income tax is payable by the original investor. + Linked Investment Service Providers (LISP’s) - Linked Investment Service Providers (LISP’s) also access listed property funds via unit trusts however the tax advantages may not be as significant if the investor has exhausted their interest income exemptions. The benefit of this vehicle is that there is no liquidity constraints like with the RA or endowment.Depending on what platform you use the main considerations should be tax and liquidity. All in all property seems to remain top-of-mind to investors. Together with a clear financial objective and an adviser, property should remain an integral part of a well-balanced portfolio along with the other four asset classes. It can be accessed not only directly, but conveniently and tax effectively via investment platforms such as Retirement Annuities and Endowments. This article was provided by Order Property Power online.
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