If you want to build your own property portfolio, you’ve probably come across finance apps like EasyProperties, and terms like Property Stokvels, Real Estate ETFs, and Real Estate Investment Trusts. Before you sign up, it’s important to do your due diligence and understand exactly how do these investments work?
Property has always been regarded as a “safe” investment as properties tend to appreciate but due to the COVID-19 market collapse some consumers might not have funds to buy a house in South Africa right now but they might still be interested in investing in real estate by buying property shares in South Africa.
In most cases, these investments are similar to the cash you invest is used to purchase a property (commercial or residential). Ultimately, you get the benefit of dividends and distributions and long-term appreciation of the properties you “own.”
What is EasyProperties?
EasyProperties is an investment platform founded by EasyEquities (EE), a subsidiary of JSE listed Purple Group Limited (PPE) – an online platform that allows anyone to buy shares in the brands and companies they love.
Like exchange-traded funds (ETFs/Stocks), EasyProperties works on a fractionalisation module, the concept of splitting up ownership of something so that many people can receive benefits from it in the long term.
This Proptech (Property technology) company enables investors to treat their property investments more like stock portfolios, focusing on asset allocation, rather than dealing with the hassles of property management.
Most property opportunities offered on Easy Properties will have an investment term of 5 years and there is no minimum investment amount for EasyProperties, but there are a few things you should know before you invest:
How to buy Property Shares in South Africa
Sign up for an EasyEquities account and activate your EasyProperties account from within the EasyEquities platform, then you can start investing in properties.
EasyProperties has partnered with leading rental managers to handle day-to-day operational responsibilities, like finding tenants, signing and managing leases, property inspections, rent collection, maintenance, paying accounts, and day-to-day tenant relations.
Each EasyProperties detail includes:
- Estimated net rental income and yield
- Forecast cash flows
- Historical suburb growth
Is EasyProperties a Real Estate Investment Trust (REITs)?
No, EasyProperites and REITs are two different types of property investments.
What is a Real Estate Investment Trust (REIT)
Real Estate Investment Trusts (REIT) are companies that manage, operate, and own a real estate portfolio consisting of income‐producing property. These companies have equity and bond features e.g. cash distribution (profits) and capital growth (share price).
REITs allow investors to reap the benefits of owning property as an asset class without directly owning and managing a property.
The share price of REITs is determined by demand and supply and therefore the potential to incur capital gains is possible.
Benefits of investing in REITs
- Diversification: REITs give investors indirect exposure to a wide variety of expertly managed properties.
- Regular Income Stream: REITs are supported by lease agreements that increase/grow on an annual basis.
- Exposure to Immovable Property: Investors may gain exposure to an immovable property with lower initial outlays
- Taxes: REITs are exempt from Capital Gains Tax (CGT) in respect of the disposal of its immovable property, shares in another REIT, or shares in a controlled property company. A REIT shareholder will only pay CGT when the REIT share is sold. Interest distributions by a REIT (or a controlled property company) payable to South African resident investors are re-characterized as taxable dividends, but dividends withholding taxes will not apply. Where the recipient is a non‐resident investor, the dividend will remain exempt from income tax.
- Liquidity: REITs are traded on the JSE and are considered more liquid than their physical properties.
- Well Regulated: REITs, notwithstanding the JSE Listing Authority, are subject to the REIT legislation particularly to the country in which the company is incorporated, the Companies Act as well as their own Articles of Association or the Collective Investment Schemes Control Act.
- Price Transparency: The share price of REITs is determined by market forces (demand and supply) and is visible to the public.
Difference between EasyProperties and REITs
The key differences between investing through EasyProperties or investing in REITs are:
|Locations||Invest in specific properties in specific locations that they know, like and understand.||Investors have no say in which properties are bought or sold.|
|Liquidity||You can only sell the fraction you own once a quarter (when they hold an auction).||You can sell at any time during the trading day.|
|Earnings||Pays out 85% of profit for the period. 15% is retained for maintenance and property related expenses.||Pays at least 75% of taxable earnings to investors.|
|Dividends||Paid out every quarter.||Paid out bi-annually.|
|Income||Pays out dividends which are subject to DWT.||Distributions are classified as income – so and individuals marginal tax rate applies|
Interview with Rupert Finnemore – CEO of EasyProperties
Listen to the full episode on the UNPACK Podcast
- What is EasyProperties (EP), what is the minimum investment, and how is it different from REITs?
- How long does it take for a property to start making money?
- Tips for someone who is using EP for the first time, how do I know I’m choosing the “right” property? What should I be looking for?
- Can I sell my EasyProperties shares at any time?
- When are dividends paid? And do I have to pay taxes?