Investing in Property Made Easy

Access point

Main features

Advantages

Disadvantages

Listed property

Property Unit Trusts (PUTs) and Property Loan Stock (PLSs), which are effectively REIT’s, and which are listed on a financial exchange like the JSE.  They have medium to large market caps and diversified portfolios

• They are highly liquid
• They’re managed by professionals who can select the best properties
• The costs are explicit
• There is considerable diversification of assets, both geographically and across sectors
• PUTs and PLSs are highly regulated vehicles, which protects investors

• A limited downside is that you can’t control which properties are purchased, but you can sell on the JSE, which is a very liquid market, if you do not like the strategy of the PUT or PLS

Direct property ownership

Buying your own property outright to rent out

• You have full control over the investment

• A lack of liquidity, and lengthy turnaround times trying to buy or sell
• The need to actively manage your investment
• Rental yields are still low in residential property.
• There is a high entry cost involved
• There is little or no diversification of assets

Joint venture/
partnership

Buying an investment property in conjunction with other parties

• You gain access to higher value properties than would be possible on your own

• A lack of liquidity
• Potential disagreement with partners
• While potentially better there is still little or no diversification of assets
• Low income yields

Property Syndication

An unlisted investment scheme that enables a group of investors to buy property and become part owner of it, either directly or indirectly.  The schemes can be structured in different ways, with different cost layers attached to them.

• Your initial capital outlay may be lower on entry as the investment is spread amongst a group of investors

• They can involve very high initial and management costs
• There is no formal marker and therefore it is not well-controlled
• There are liquidity constraints, making it difficult to exit the investment.  These are a result of the lack of a formal marker
• There is scope to manipulate property values
• General there is little or no diversification of assets

Exchange Traded Funds (ETF)

An ETF is established as a listed collective investment scheme, like a unit trust.  The aim of the scheme is to replicate, as far as possible, the price and yield performance of a specified Index, in this case, the Listed Property Index.  The units or shares of the funds are generally listed on a financial exchange like the JSE

• They are easy to access and there is a low entry cost
• They are flexible, it is easy to scale u or down
• They are highly liquid, like other listed entities
• There is greater transparency in terms of the investments and interests
• ETFs are a well-regulated marker

• In jou like to actively manage your portfolio, this may not suit you

Collective Investment Schemes

A unitised fund set up under a trust deed that allows investors to participate in a larger pool of assets, in this case, a pool of property assets.

• They are highly liquid
• They are managed by professionals
• All the costs are explicit
• There is considerable diversification of assets, both geographically and across sectors
• CISs are a highly regulated marker

• They tend to track the index in any event, due to the relatively small universe of listed property shares and units.  There can be steep management fees involved

Offshore property, in any of the above investment vehicles.

Offshore property investments can be made in any of the vehicles shown above.  However, the additional dimension of offshore investment diversification is added, for example, property in London or Paris, both form a geographical and currency perspective.  In some instances, investors gain access to other sectors, such as infrastructure.

• This offer good diversification, as you can spread your risk across different geographic regions

• You take on exchange rate risk
• You may not understand the foreign marker, and could en up investing in low-quality properties.
• If you are investing in direct offshore property such as residential flats, ask the question: why did they come to Africa to sell the property, and why could they not will the property in their own market (if it is so good)?