90% of the world’s incredibly wealthy, have included real estate in their investment portfolios.

Why?

Simply put, it's been proven over decades that an investor is ‘almost’ guaranteed a good return from real estate, dependent on a number of variables, such as location or economic factors.

Up to 2013, most South Africans realised property wealth through the purchase of physical properties. That changed when the Johannesburg Stock Exchange (JSE) followed the path of other global exchanges, introducing to our landscape REITs.

At that time, REITS were considered somewhat revolutionary in that an investor no longer needed to buy-to-rent or buy-to-sell in order to make money. Even better, was that REITs allowed even small investors accessibility to a broad spectrum of real estate investments that were previously out of their reach or financial capability.

What is a REIT?

Who better to answer this question than the SA REIT Association (SAREIT), which promotes and protects the interests of the REIT sector through advocacy, support, and education, as well as providing its members with tools they need to succeed.

SAREIT defines a REIT as:

A company that derives income from the ownership, trading, and development of income-producing real estate assets.

REIT companies are listed on the Johannesburg Stock Exchange, which gives reassurance that they are regulated and compliant with the Companies Act. Investors have the peace-of-mind that the REIT listing companies are legitimate, transparent in their transactions, and have oversight.

How REITs operate

• REIT companies pool the money from investors who buy shares, to purchase or develop real estate assets.

• Generally the REIT companies invest in a broad range of local real estate types, including office, residential, retail, industrial, and hotels.

• The income generated from these properties, is distributed back to investors as dividends.

Benefits of a REIT

• REITs do not pay corporate income tax.

• REIT investors do not incur dividends tax on payouts; they only pay income tax on the distributions they receive, and at their marginal income tax rate.

• They help to diversify an investment portfolio because risk is spread across different asset classes such as commercial, industrial, retail and residential real estate.

• REITs offer quick liquidity, meaning it is far easier to enter and exit the investment.

• The property assets in which the REITs are invested are efficiently and professionally managed, maintained, and driven to improve property value and income potential.

• They offer protection against the effects of inflation.

• Provides a regular income stream.

• REIT companies invest in local real estate, but may, if compliant with regulation, also invest internationally.

Negatives

• Economic instability can impact on a REITs ability to perform, affecting property values, tenant demands, and rental income.

• REITs are sensitive to a changing interest rate: in a rising interest rate market, the profitability of a REIT can be negatively impacted due to increasing borrowing costs, but conversely falling rates, such as in our current climate, enhances their attractiveness as finance costs are lowered.

• Changes to tax laws and property regulations can impact on dividend policies or operational procedures. This means REIT investors should be alert to changing market conditions.

Performance

It is no secret that REITs floundered over the past five years but so too did the entire property market as a result of the Covid-imposed interest rate changes. In some cases REIT companies were far more effected given large tenant losses due to business closures and work-from-home scenario’s.

Yet REITs recovered very quickly and, says Dawie Roodt, Chief Economist at the Efficient Group, in the current economic climate, “REITs are giving a far better return on investment than privately owned properties.

“REITs costs are lower and the liquidity much better as a rule. And, generally, REITs allow for smaller investment amounts."

Prepare to invest

Before diving into REITs, it’s important to assess your financial wellbeing. You should consider how much debt you have, the reliability of your income, credit score, and how much money you have put aside for emergencies.

You should also become informed about the property market and trends, and as Roodt suggests, for this “it’s best to use a trusted advisor.”

If going it alone, start small with a strong focus on your cash flow.

Strong growth predicted for REITs in 2025 Estienne De Klerk is SAREIT’s Chairperson and South African CEO of one of the country’s largest REITs iGrowthpoint Properties. He confirms that SA REITS staged an incredible comeback in October last year, delivering a 34% return, which outperformed equities and bonds in that month. The key influencers were largely the introduction of a Government of National Unity (GNU) and a stable power supply, both of which have positively driven improvements in property fundamentals.

“In 2024, we have seen notable improvements in key property performance indicators, signalling strong investment potential and supporting expectations for future net rental growth. The anticipation of additional interest rate cuts has further bolstered investor confidence and sentiment, creating a positive outlook for the sector as we head into 2025,” said De Klerk.

SAREIT highlights that REITs are optimising their portfolios to enhance quality and implementing proactive asset management strategies to increase property values.

Alongside, office real estate has strengthened with demand now outpacing supply in most areas, other than in Johannesburg where an oversupply still exists. De Klerk expects to see better trading densities in retail and rental growth in 2025. “The industrial property sector continues to outperform, driven by strong demand, limited supply and rising construction costs, all of which are fuelling rental growth—this trend is set to continue into 2025.” Other positives for REITs in the year ahead include a rising interest in earning a passive income, shifts towards alternative investments, advancements in technology for access to REITs, and a rapidly increasing focus on sustainable buildings.