When investing in property on your own the classic approach is to buy a place and rent it out. You basically use the rental income to pay off the property over time leaving you with an appreciable asset. It sounds easier at the outset but there are many factors which affect the investment:

The price you pay

The rent you receive

The maintenance costs

The costs of buying and selling the property

The tax payable

If you get it wrong you could be stuck with an investment which returns way below what you could have done with your money in a bank account. Add to it the hassle factor of running the project and the legalities which favour the tenant you could be in for a long rough ride.

There is an easier way to invest in the property market. A fund which invests in property companies which are listed on the stock exchange. You can choose either a Property Unit Trust (PUT) which will be managed by a fund manager or an Exchange Traded Fund (ETF) which tracks the property index on the JSE. The advantages of going this route are:

Liquidity 

You can sell your investment at the market price on the day. Unlike a fixed property where you have to find a buyer to pay the price, you are looking for. This could take months, and then even longer to process the transfer and registration of the new buyer before you get your hands on the cash.

Risk

The Unit Trusts and ETFs offer a spread of shares in property companies offering diversification across commercial, residential and industrial properties. This significantly reduces your risk as your investment is spread across companies and sectors in the property market.

Easier to manage

The investment is managed by a range of professional companies. They contend with the purchase issues, maintenance, rental agreements, and legalities of running properties. Their business models are well run to the point that they can forecast their future growth and returns with reasonable confidence allowing you to anticipate your future returns.

Like any shares, there are inherent risks of losing capital. You will need to invest over a longer period to compensate for the risks.

You will need to study the factsheets and do your homework. www.etfsa.co.za is a good starting point.

For the investor who wants exposure to property PUTs and ETFs are worthwhile alternatives.

In what is known as the “Clean Break Principle” recent regulations entitle divorced spouses to claim from the pension fund of the ex before retirement. These rules apply to government pension funds as well which have left members with interest-bearing debts which have to be repaid to the fund. The problem rests with the time it will take to put the fund back in a position to honour its obligations to pay future pensions.

A defined benefit pension fund takes on the obligation to pay a member a specific pension at retirement based on the number of years that the member has contributed to the fund. It is a very onerous task for the fund as it needs to be in a sound financial position at all times to ensure that all members during retirement receive their pension benefits. The problem is compounded by the fact that members are living longer which puts enormous pressure on the present and future values of the fund. The sustainability of many funds is questionable as it is, so these premature payouts in divorce claims will cause serious problems for actuaries and trustees.

The claims against pension funds are on the rise and there is even a suggestion that many members are arranging their divorce just to get their hands on the cash.

Ideally, the funds should not be cashed in and, instead, they should be preserved. It takes time to catch up on the value accumulated through compound interest on the investments made in the fund and quite often there isn’t enough time left for most to make catch up before reaching retirement.

So the message is clear. Your entitlement to the pension fund should you get divorced, should rather be preserved and included in your retirement provisions for the future. As a divorcee your financial independence is even more crucial in the future as you are all on your own. Your pension claim should therefore be protected at all costs and should not be seen as a windfall.

Keep a close eye on the future value of your pension after a divorce claim and make adjustments sooner than later. The defined benefit funds in the latest changes charge the member interest on the debt and in many cases, members won’t have enough months left before retirement to pay back the money. This is a dilemma for the trustees on defined benefit funds and serious adjustments will have to be made for future benefits.