Historically, property shows a propensity for resilient investment during tough economic times. Yet, it requires considerable liquidity - which can make it seem like an unattainable asset goal.
But what are some of the mechanisms available to either help newbies take ownership of their first home or seasoned investors make the most of compound interest and tax-free breaks?
READ: Expect further rate cut in buyers' market, as property resilience shows in turbulent times
We take a look at three possible options to consider - each with their own merit and specific set of qualification requirements.
- FLISP housing subsidy
The Finance Linked Individual Subsidy Programme (FLISP) is a housing subsidy programme introduced by government for first-time home buyers to assist with purchasing a home.
The subsidy is paid to your bank or financial institution and will reduce your monthly loan instalments, making it more affordable to purchase a home. Households with an income between R3 501 to R22 000 may qualify for the FLISP subsidy if they meet all the criteria.
The affordability ceiling of a first-time buyer who qualifies for a Government FLISP subsidy has recently seen an increase from the previous average home loan amount of R680 000 to a value of up to R870 000 - but it all depends on the buyer's ability to manage their debt.
Although financial institutions are keen to approve home loans, still some 56% of home loans are still declined. The average South African citizen spends almost 66% of his or her income to service debt - making this programme not only a means to ensure better financial health for individuals but to make property ownership a reality for those who might otherwise reamin caught in the rental cycle. Click here to find out more.
READ: Struggling to buy your own home? Check to see if you qualify for a FLISP housing subsidy
- Section 12J tax-break investment
Section 12J of the Income Tax Act was introduced in 2009 by the South African Government to encourage South African taxpayers to invest in local companies and receive a 100% tax deduction of the value of their investment.
The investor receives a share certificate and a tax certificate, allowing the invested amount to be deducted from the investor’s taxable income, in the year the investment is made.
It is estimated that South Africans have invested over R6 billion into the 12J sector. As another government-backed property ownership initiative, it is believed the 100% tax deductible investment model stimulates economic growth for those who might not have been able to afford property investment.
One such investment option, the Flyt Hospitality fund, "invests in strategically located hospitality properties with a focus on sectional-title serviced apartments and student accommodation".
"We love the 12J incentive because we believe that it is an opportunity to participate in the Government’s policy of job creation, all the while providing our investors with attractive returns and a viable exit strategy. For every R1million invested 4.1 jobs are created," states its founders.
READ: This R1m co-living apartment block investment in Cape's underrated Diep River is 100% tax deductible
- Transactional Wallets
Transactional wallets are old hat for share trading platforms — but real estate investors are being encouraged to take advantage of its ease of use for compound investing, according to global real estate platform Wealth Migrate.
Taking a dividend on a stock trading platform and immediately buying another share is easy. This has not been the case with real estate — deals are large and clunky, with a lot of admin and hassle involved.
"This contrasts strongly with stocks or interest, where investors can take a small, regular payment (dividend or interest) and immediately invest it into another similar-type investment.
Property is an asset that the average investor can attain, using gearing to leverage (that is getting a mortgage to cover a large part of the purchase price) and, second, as a real tangible asset. It is not as susceptible to emotional decisions and fluctuations like stocks and real estate investment trusts (Reits), says Wealth Migrate.
"The wallet is essentially your cash account within the system. A share pays a dividend, and it shows up as cash in your wallet. You can immediately invest that money into another share purchase. No bank transfers or transfer fees, just a simple swipe of the finger or click of the mouse.
Wealth Migrate details how its transactional account, alongside its offering to investors to own a direct share in a property without having to invest the full purchase price of the building, "now brings simple compound investing to the global real estate market".
"Invest, earn income from your property, and immediately reinvest the regular returns into your next property, thereby growing your global real estate portfolio." For more info visit wealthmigrate.com
READ: How to turn R700k into an investment property in the UK that pays itself off
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