REAL estate investment trusts typically invest in office blocks, shopping centres and industrial property. Supplied
REAL estate investment trusts typically invest in office blocks, shopping centres and industrial property. Supplied

OPINION: Invest in property without costly and risky ownership

By Marc Edwards Time of article published Jun 14, 2019

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When people want to invest in real estate, they usually secure a loan to purchase a property - either residential or commercial. But there are other, more efficient and less costly ways to invest in the property sector.

There are many benefits to direct real estate investment and it is easy to see why buying to let is an attractive investment option.

However, it is also easy to overlook the considerable costs you can incur and the drain this type of investment has on your time. The downsides include a lack of diversification, lower liquidity, vacancies leading to loss of rental income, property taxes and insurance and maintenance costs.

This is part of the reason real estate investment trusts (Reits) have become so popular. Reits offer many of the same benefits of direct property investment but without the problems.

A Reit is basically a company that owns a portfolio of income-producing real estate that provides investors with the opportunity to own valuable real estate for as little as the price of a share.

Individuals can invest in Reits either by purchasing their shares directly on an open exchange or by investing in a unit trust type of product that specialises in public property.

Six monthly dividends will come from the rent collected on these properties, and the value of your Reit shares can increase over time - subject to a stable market - as profits grow, so you'll also own an appreciating asset that grows in value, much like a stock.

But it is not just about returns. There are many benefits to owning shares in a Reit compared to direct real estate investing (see box above).

Reits have been the best-performing asset class in South Africa for the past 15 years. In the past 18 months, returns have decreased because of a number of factors, resulting in a cheaper entry into listed property.

Therefore, if you're thinking about increasing your real estate exposure and want access to a diversified pool of liquid real estate assets that give you six monthly dividends, as well as capital growth, a Reit is probably the right investment for you.

Marc Edwards is the chief executive of Tower Property Fund.


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