"2020".. If you are like most of us your heart might pound a bit harder when you hear those words, I know my heart does. 2020 has been a tough, messed up and difficult year for most people. A study done by Old Mutual shows that 57% of employed South Africans are now earning less than what they were earning in February 2020 while 40% of those currently employed only have enough funds to survive for one month or less should they lose their jobs (Scary). Debts have spiraled out of control and people are losing a grip on their finances. Worse unemployment is set to increase as the country battles with a shrinking economy and things are yet to get better soon. Yes, the situation is tough. I can hear you asking how does such a gloomy introduction relate to Easy Properties? Well it has to do with this key question that 2020 has shoved on most of us "What are you going to do to make money when things go bad?"
In this post I am going to discuss two things. 1, the hurdles of property investing in South Africa and 2, why Easy Properties matters and came at the right time. But before that I want to briefly discuss why people have a desire to invest in property.
Income Insecurity...
Income insecurity is slowly becoming the problem we all have in common. Gone are the days where people use to worry about just income security for retirement, now we worry about how we are going to earn money to live today. (A problem the Retirement Financial services industry needs to give answers for)
What is income security? It is the level of reliability of your source of income. As the world is changing more and more people are experiencing income insecurity. The one thing Covid-19 has exposed about our country is that we are not prepared for an internet driven future where employment and thus income is digitally based. Most South Africans are still employed in physical labor style jobs. Jobs that require us to be physically present to serve customers and thus get paid. When people are required to be physically apart (social distancing) we lose those moments where transactions occur and so lose our incomes. This does not just apply to jobs such as being a waiter, being a hairdresser, farm laborer, mining etc. This also applies to the intellectual jobs as well... how many GP's (doctors) do you know who were ready to consult online? Are our courts set up in such a way that lawyers can work digitally? How many professors were ready to lecture online? Are all finance departments in companies totally paperless?
There are many professions that are suited to be online but how many were ready for it? Very few in South Africa and so people have lost their jobs. Most people have found themselves lacking in skills for the digital future of their current jobs and are now worried about losing them, an inevitable reality. Unemployment did not just skyrocket because of Covid-19 it has skyrocketed because we are an ill prepared country for the future when it comes to our skills and needs... a reality that we have had for years.
And What do people do when there is an economic downturn?
They go to school in the belief that it will improve their chances of being employed but when businesses are collapsing and the universities are not teaching, the next thing people do is invest especially with their severance packages. This is where property investing enters the picture. The stock market is a rough place filled with ups and downs that are visible and so people avoid stocks and instead look for safe investments and property is one of those assets people believe is safe. I won't debate whether it is safe or not on this post but rather I will write for the reality of what people believe. People invest in property because they need an extra income or sole income that they believe is guaranteed. This use to be the problem of the retiree who would take their pension and buy a property to rent out and have income to sustain them while having an asset to pass on to their dependence.
And what else could sound like guaranteed income more than renting out your property in a country with a 2% population increase per year?
What are the hurdles of investing in property?
As I have written in my post about Property Investing Through REITS, property investing has a few hurdles, hurdles that are true for most geographies in the world. The first hurdle is expense. The cost of purchasing a property or starting a property business by subletting leased properties is expensive for most people. The startup costs form a barrier of entry that prevents most people from participating in the space and not a lot has been done or can be done to lower the barrier of entry without upsetting the fabric of the lending culture in South Africa, yes i am jabbing the banks here and the government. Suffice it to say that if you are young, in debt from a bad cellphone contract and with a salary that fairly matches your education level and skills you are not getting a property soon in South Africa.
The other minor hurdle is the economy. South Africa's economy has made property investing a bit risky even if you have cash to burn aka your severance package. Retail outlets have suffered as more and more tenants close down or migrate to online. The mall is slowly becoming a relic and innovation has been slow to come up with new attractions in malls. Bigger and better no longer cuts it. Consumers who can afford mass shopping sprees are turning to online shopping more and more. Worse as the economy shrinks and less businesses are created it means there will be less tenants for retail properties. Office parks and precincts also fall in this category and are suffering. Why does this matter? It matters in South Africa where majority of the listed REITS (Real Estate Investment Trusts) are in retail and office. So investors don't have a reliable property investment instrument that they can trust to not slash yields to the point where investing is useless.
Residential properties have however not been spared...
Residential property yields are being eroded by municipal rates and fees. Residential property investing is no longer the "sure thing" it used to be. You can no longer just buy a property, get a tenant and smile all the way to the bank. Basically, it is tough to throw your money into property. Yes, the population is growing which in theory means there will be long-term demand for property which will boost the value of properties. The question becomes will the future population be able to afford the rents or to purchase properties? the current trend points to an undefined direction in regard to that question.
I do not know what the property market will be doing in South Africa in the years to come. There are numerous variables that currently make me uncertain, especially those of a political nature. However here is what I do know... there will always be opportunities to invest where there are problems because problems are opportunities for growth for those who have the solution... enter Easy Properties...
We have established that people are hungry for property investing and that there are hurdles to enter the space. Easy Properties provides a solution to the hurdles while also satisfying the hunger for property investing.
What is Easy Properties?
Easy Properties is an online platform that enables users to invest in property via the purchasing of fractional shares of properties. Fractional Property Investing works the same way people can buy fractions of companies in the form of shares so instead of it being a company that they are purchasing it is a property. This works by dividing the total value of the property into shares that can be bought in a single unit thus decreasing the cost of investing.
The great thing about the platform is that in just a few clicks you can buy your first share of a property and start your property investing journey. The value of your shares are linked to the value of the property and properties listed on Easy Properties are independently evaluated.
How does the platform work?
Simple. Users open an account online, FICA their account and then fund their Easy Properties account with whatever amount they wish. Users can then browse the properties, read about their financials, see their locations and purchase shares.
How do you get paid?
Users are paid from the net rental income that is collected. This means you are paid monthly dividends that are generated after expenses are paid. Easy Properties will manage, find tenants, collect rent, do the paperwork etc on your behalf. All you have to do is enjoy being paid money into your account.
What are the negatives?
Just like with all investment tools there are pros and cons. The first big pro is the shattering of the barrier to entry to property investing. The costs have been destroyed as you will pay no transfer fees, deposits, interests, lawyers, agents etc to own your property. The capital you invest is the capital you invest. This comes with the drawback of having Easy Properties do everything, meaning you cannot exercise control over the property. You are essentially a passive passenger who collects income for funding the trip. Depending on who you are this is a pro or con.
Furthermore, the properties currently listed on the platform are based in sunny South Africa and I assume that those that will be added in the future will be too (I hope I am wrong). Having the properties located in South Africa means those properties are susceptible to the current issues in South Africa. When Easy Properties was announced, it was meant to also have retail properties but that was taken off the table after it was realized that retail properties will cause some bumps on the road. I am confident that the team at Easy Properties will select great properties that will grow in value over the long-term and pay solid yields. But I must admit that I am worried about how they will navigate our country's economy. Nonetheless Easy Properties came at the right time, at a time where new ways of investing are needed, especially in the property sector.
Should I use Easy Properties?
This is where you as a person must be honest and qualify yourself.
Can you afford a deposit? Can you afford the transfer fees? Is your job or income stable? Will you be able to afford a bond for the next 20 years? Is your credit record/score good? Will you be able to navigate the complexities of leasing your property? Do you know enough about taxes? Do you even have life insurance?
These are just some of the basic questions to ask yourself. There are plenty more questions that can open you up to understanding if property investing via a bond or purchase is right for you. If you answered NO to half of the questions above, then well...
In the era where people do not stay employed in one location for 30 years or more it seems to make no sense to get a bond or purchase a property and risk being at the mercy of what happens to that location in the future. Let's face it, as the internet generation we would prefer to get the money without too much work and not be tied to a location or have an asset we cannot speedily dispose of when our desire for instant gratification requires us to do so. And the truth is we are just too broke to afford the hassle anyway. So should you use Easy Properties to invest in property? Odds are you didn't have an alternative to begin with, that should give you your answer.
Happy Investing.
Omega.
Remember: Opinions expressed in this article do not and never will constitute financial advice. Every person’s financial situation is different; I recommend you speak to a financial adviser about yours.
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