Property versus RAs

All South Africans worry about retiring at some stage in their lives. Where are the funds going to come from? What is the best option: property or saving money in a retirement annuity (RA).

“Both have advantages,” says Just Property Invest’s Minette du Plessis, “but property still has the best return. You can enjoy the cumulative growth of a property investment, which is the combination of capital and rental growth.”

If you are shopping for the perfect property investment, Du Plessis recommends doing a comparative marketing analysis.

“The right area is important in terms of growth and rental potential. Amenities play a big part too. Make sure that there are malls and schools close by, and easy access to major roads,” she says. “Security is another important consideration. Tenants look for these aspects to make their lives easier.”

Du Plessis says reputable agents should be able to help would-be investors do a market analysis. Alternatively, property portals allow one to easily research the rentals in a specific area, as well as the property prices, and compare the two.

“You don’t need to have lumps of cash to buy an investment property,” Du Plessis adds.

“All four major banks offer 100% bonds to first-time buyers and good criteria clients.”

If you earn R30 000 a month and have a good credit record, you will probably qualify for a R1 million bond, she says.

The large investment firms have calculators that will help you quickly work out what you need to put away for the lifestyle you want after you retire. “If you are 36 years old and you want to retire by 60 with an income of at least R30 000 a month (which in 24 years’ time will be very low), you would have to save 17% of your income every month towards that.

“When the investment matures, you can only withdraw 33% of the total. The rest must be invested in a pension vehicle. Will 33% allow you to buy your dream retirement home? Will you be able to live off the residue?

“You could instead buy a property for a R1 million and rent it out. If you put the rental income, as well as the money that you would have been paying into the retirement annuity, into the bond, you could break even on that property after just three to four years.

“By the time you are retired you will have a good, stable income and assets that have appreciated over time. You will also be able to leave your portfolio to the ones you love when the time comes.”

It is always advisable to discuss retirement provision options with a qualified, independent financial advisor. Consider all future expenses, factoring in big-cost items such as education for your children. Look at your levels of shortterm debt and consider settling these before investing.