KEABETSWE LIANNA KOORAPETSE
DITHEBE CORNER
#FINANCIALLYSAVVY
#FINANCIALPLANNING
Some parts of the world have very large populations. A very large number of people in one place can be both an advantage and a disadvantage. The advantages include an increased workforce that can multiply skills, production and activity in the markets. The disadvantages include smaller living spaces and limited food supplies. With the world predicted to have serious food shortages by the year 2050, you can only imagine how much less space will be available for both agricultural and residential purposes. Whether you are a farmer or an individual that owns land, now is the time to prepare for the opportunities that lie ahead.
Our financial planning topic for this week is THE PROPERTY MARKET. Property is a real asset that provides shelter or covering. It is a living necessity forming part of Maslow’s hierarchy of needs. Also, property is a special real asset that has managed to actively participate in markets that were previously limited to liquid assets. As part of our resource management, property is an asset that can be attached to any investment period. It can form part of our short-term, medium-term or long-term goals.
Types of property include: residential – where we live; Commercial – where we work (such as malls, retail shops, offices, hospitals, and schools); Industrial – for research, manufacturing, and storage purposes (such as warehouses); Agricultural – where we farm; and Vacant land – land not developed
Different types of property are affected by different factors. This includes economic, political, socio-cultural and environmental conditions. Firstly, we must take note of economic factors such as interest rates especially if we have mortgaged our homes, as that may affect our future payments. Secondly, notice that political instability of a country does not typically attract investors and promote property value growth. Thirdly, though not always legal, be aware that a reason why it is difficult to buy property in some neighbourhoods is that they can form collectives that restrict new entries based on socio-cultural factors. Additionally, the need for us to know historical and recent climate conditions of the area in which our property is situated, is becoming more and more important. This is so that we can be better prepared for possible events in the future and to be able to attach the proper insurance cover to our property against any risks. Please read your house or business insurance policy carefully, especially the fine print. Be sure to know to know what you are covered for and if it is full cover.
The influence of all these factors can be noticed through the way they affect the investment returns on our property.
Investment returns on property are rental income and increase in capital value of property. Rental income on our property is usually an appreciating investment return under ideal market conditions. However, as with any real asset, we can only know the true market value of our property when we sell it. Therefore, we sometimes value our property around the same prices as properties in the same area.
Ownership of property
A similar concept of direct and indirect ownership of equities and bonds also applies to property. Indirect ownership of property includes the limited right to enjoy the profit returns generated from the property investment. This can be through investment portfolios. And direct ownership of property includes a title deed, ownership rights to the physical property or shares in a property company listed on the BSE.
Direct ownership of property is not an instant reality. It takes time, work and funding to complete the whole process. The two ways to obtain financing and direct ownership of property includes renting and mortgage financing. We can rent whilst saving up the full purchase amount for our desired property or we can have mortgage financing to purchase our property. Either way, we must work and pay our way towards property ownership. Do take some time to compare the two options when considering to own property.
Players in the property market include The Botswana Stock Exchange (BSE); Registered stockbrokers; Property/real estate companies – offer sales and rentals; Individuals – privately selling and acquiring property through social media and other forms of advertisements; Construction companies – build up the actual property building; Architects – design property plans; Insurance companies – offer risk cover as well as act as large investors in the market; The Government – approves land allocations, title deeds, change of ownership, and structural changes; Banks and other financing structures. There are many players in the property market that can influence the values and returns on our properties.
Risk profile
Property in an investment portfolio improves diversity and the spread of risk. Therefore, property is usually allocated a small portion in the overall portfolio. And proportions differ among the different risk profiles and investment periods.
Other considerations
Owning land and livestock is part our culture. However, land in Botswana is no longer rightfully awarded to a Motswana. It seems to be a privilege that has been taken away without reason or notice. However, this should not stop us from taking part in the property market. There are always many different roads that lead to the same destination.
Other considerations to make in the property market is whether to build a house or purchase a complete project. Both options have their pros and cons, so do take some time to consider how they would affect your finances and household dynamics. Be mindful of some matrimonial property rights regarding real assets, where the 50/50 rule does not apply in the physical form. Also, be aware of the taxation involved with the disposal or transfer of property from one party to another. There is quite a bit to consider before owning property. Proper planning can assist in avoiding a lot of unwanted mistakes. Therefore, let us properly take on the challenge of making all our resources profitable through resource management and property investments.