What does listed property offer the investor?

Private Property South Africa
Property Power

A look at the various possibilities that present themselves when using investment platforms that offer listed property funds.

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 affordable than the start up costs required for investing directly in commercial, industrial and residential property.

Liquidity?

In the event that money is needed elsewhere, listed property shares can be sold easily and you will receive your money within 48-hours. Traditionally property is, by its nature, very illiquid whereas with listed property, monies are paid directly into the clients’ bank account seamlessly. Transactional costs listed are reduced significantly as the costs of selling property itself are avoided when selling 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 investing in property directly management company takes the hassle out of investing in property directly.

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 whilst the investor is investing money into his RA. Property funds can be accessed using Retirement Annuity platforms. 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 to invest in. The endowment also offers greater liquidity than the Retirement Annuity, as funds in a RA can only be accessed by the investor from age 55 onwards. An endowment is funded with the investor’s after tax money but the insurance company pays any income tax due in the fund itself. Therefore, in terms of current revenue practice, all withdrawals from an endowment by the individual investor are treated as tax free withdrawals and no additional income tax is payable by the investor, as long as the investor has been investing in the endowment for a minimum of 5 years.

  • 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.

Depending on what platform you use the main considerations should be tax and liquidity.

Together with clear financial objectives 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 originally appeared in Property Power 11th Edition Magazine. To order your copy at the discounted price of R120 click here.

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