Patience is key when growing your property portfolio
of the Enterprise Development Property Fund. Of this R5.8-trillion, R1.3-trillion is in the commercial market, R3.8-trillion in the residential market, R237-billion is in the public sector and R520-billion in other markets.
Globally, many large enterprises such as McDonald’s have made fortunes in innovative revenue generation from property. The fast-food giant is better known for its burgers and value meals, but many argue that they are actually real estate moguls. Former McDonald’s chief executive Harry J Sonneborn is even quoted as saying: “We are not technically in the food business. We are in the real estate business. The only reason we sell 15-cent hamburgers is because they are the greatest producer of revenue, from which our tenants can pay us our rent.” McDonald’s is in effect a property business, because it buys the best properties in the world and then leases them out to its franchisees. Effectively, McDonald’s becomes the landlord of the franchisee and leases the properties at large markups. This is one of the reasons this fast food giant has seen great wins with regards to profit.
It is worth remembering that it was the American residential property market (along with faulty financial instruments used by bankers) that caused the 2008 worldwide recession, which devastated so many lives. How safe is this market with regards to your investments?
Property development, property management and property investment are all interlinked and broadly be described as the real estate environment. Generally property development refers to the improvement of land and/or buildings to meet the needs of society from a social, commercial or infrastructural standpoint.
Property development includes residential (housing), commercial (offices), retail (shopping centres) and industrial (manufacturing and logistics) sectors. The residential sector primarily focuses on consumers, while the commercial, retail and industrial sectors primarily focus on businesses. Within all these sectors, anyone can start a property asset management portfolio. One can start investing individually, or in groups, depending on the timeline of the project and the income.
From an entrepreneurship standpoint, property ownership and management with the intention to earn profit has gained much attention because more and more previously disadvantaged South Africans are gaining access to property through the transformation agenda, in the form of the broad-based black economic empowerment (B-BBEE). One of the ways that black entrepreneurs have obtained access to property is through sale of assets, under the B-BBEE scorecard. To put this into context, companies seeking B-BBEE compliance need to ensure that a particular percentage of their assets is owned by black people/and or bodies such as trusts. Each sector charter will define how much black ownership a company needs to have. However, some multinationals are prohibited by their international company policies to sell a stake in the business, and thus opt to a do of sale of assets transaction. A sale of assets transaction allows the multinational to sell an asset to black people/entities and this transaction earns the multinational points under the ownership scorecard, depending on the value of the asset. Typically these multinationals will sell equipment, and in other cases, property. This allows the black entity — now the new owner — to rent the property out, and thus generate an income.
For the South African with two bonds to pay, you may have access to an extra property and are considering renting it out at a profit. Is the equation that simple, or are there other considerations to be made when attempting to make a profit from the property sector?
According to property experts, ordinary South Africans can enter this obviously lucrative market, and with a minimal capital investment. However, besides cash, there are two interlinked investments that would-be property gurus must make: time and education, or knowledge.
According to Nigel Adriaanse, chief executive of the Enterprise Development Property Fund (EDPF), patience is a key factor in perfecting the art of growing your property portfolio. There are a few key levers to pull in order to win in the property game, and the most important factor is to make decisions using reliable information. “Never get emotional about property,” Adriaanse warns. “Look at it as an asset, rather than a place to live.” Adriaanse further suggests that a due diligence be conducted and for financial feasibility studies to be done, with an understanding of credit ratings, before buying a property.
Ensuring that South Africans — especially the previously excluded individuals — are empowered is a mammoth task to achieve, and the EDPF is at the forefront. The fund aims to change the way South Africans think about property and to change the landscape of ownership in South Africa so as to create opportunities.
The EDPF gives property entrepreneurs an opportunity to access important resources to grow their real estate portfolio. They have access to top mentors and resources in the industry to help them gain a foothold in the property sector. The