Building a war chest for business and growing a strong personal balance sheet to build a legacy of generational wealth is a challenge that all entrepreneurs and business people face. Investing in property is an effective way of achieving this, but where do you start?
Entrepreneurship To The Point, the entrepreneurship network hosted monthly by Property Point, the Growthpoint Properties initiative, shared insight from four industry experts to equip entrepreneurs with the ability to own equity, whether in bricks and mortar or listed property shares.
George Muchanya, Head of Corporate Finance at Growthpoint Properties, has 27 years of experience in the property industry spanning engineering, management, and consulting.
The questions that I am most often asked are ‘should I be invested in property at all?’ and if so, ‘should I invest in ‘bricks-and-mortar’ property or listed property shares?’
Property is a long-term play; that’s the only way to look at it. You cannot invest your money and expect returns on day one. So, if you are a long-term investor, property is a good fit.
Property asset classes typically include offices, shopping centres, industrial property, warehouses, retirement villages, hospitals and so on. Listed property is a proxy to access in these properties.
Most people, however, don’t have the capital required to buy a building on their own. However, for R1,000 you can buy shares on the stock market. Buying shares in listed property gives everyone, even if they only have a small amount to invest, the opportunity to own property. Investing in listed property helps you to start saving and earning returns in modest amounts.
A key factor of investing in listed property is liquidity. Property shares have greater liquidity than fixed property investments; selling and buying them is quick, easy and hassle-free. When you invest in listed property shares it is lower risk, because you aren’t investing in a single property but rather a diverse multi-property portfolio. You don’t have to worry about maintaining a property and finding tenants, the professional management teams of listed property companies are responsible for this. Also, most listed property companies pay regular dividends to their shareholder every six months.
On the other hand, physical property is less volatile than listed property over the short term; the value of shares on the stock market change on a daily basis. Fixed property also has sentimental value because you can see it; it makes us feel good to see what you own.
Ipeleng Mkhari, CEO of Motseng Investment Holdings, is also the current President of the South African Property Owners Association (SAPOA). She says:
Operating in the commercial property sector can be quite intimidating because when you enter this industry any asset that you would want to buy would be a large asset with a big price tag. One of the things that we have learned along Motseng’s journey is that this is a long-term journey, buying properties is not something that you do on day one, certainly in our view. We used the model of self-creating and basing our growth on an annuity income for 10 years, and continually building that up. Once we’d built a small balance sheet, we could start acquiring.
The value of wealth creation lies in building up your personal balance sheet, and that personal balance sheet does lie in property. You can start either by investing in listed property shares or SA REITs (real estate investment trusts) or buying a property asset – one apartment or one building – and then build from that. There are a number of ways to do this, but it does take time.
One of the real benefits of investing in property shares is the liquidity. For instance, a Stokvel that saves money every month could invest in a particular listed property share out of the 30-plus listed on the JSE, and the beauty is that they would receive dividends every six months that they can reinvest in the very stock that they already own or diversify into other REITs. That in itself could be sufficient to enable the Stokvel to build up enough to buy a small plot of land or a physical property asset.
Sandi Mbutuma, Managing Director of Azzaro Quantity Surveyors, is the former Chairperson of the Women’s Property Network and serves on the board of the Property Sector Charter Council. She says:
One of the most important factors is identifying the asset classes and understanding them first. For example, Residential property is very popular with people who want to enter the market. If you have a primary long-term liability with the banks you can build up a credit profile, which allows you to access a secondary bond and this enables you to enter the buy-to-let market.
Fractional property ownership, be it owning one room in a hotel or shares in listed property, has proven to be successful and resilient.
When people enter the property investment industry it is generally not by buying a block of flats, but rather starting with investing in one apartment at a time. In an office development, perhaps they would start by owning a 150sqm sectional title office.
Property has been stable and resilient over the long term, and the optimistic view is that going forward there will be positive movement.
Dr Sedise Moseneke, Executive Director of Vukile Property Fund, is also the non-executive chairman of Encha Property services. He advises:
People tend to make decisions about buying property on an emotional level, but when you are an investment property owning entity you have to be removed from the emotion. Our decisions are commercially based.
We won’t go into making an investment decision without doing two things. One, we go and kick the tyres, so to speak. We get out there to see the property, touch the ground that it is on and learn about the people in the area. Two, we won’t touch a property unless we do a proper study of the area and the location. Only once you have done the study and touched the soil do you get a good picture of the property.
There is a world of insightful information available on property investment, and resources include company annual reports, bank and analyst reports, and research and publications from industry organisations like SAPOA, the SA REIT Association and Property Point.