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Property: Commercial property bolsters investors against a weakening r

 





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Investors in the money market have become poorer in the last few months as the real value of their incomes dropped drastically. At the same time investors in geared properties enjoyed real growth, says Jurie Wessels of Gauteng, Managing Director of Capital Investments, an asset manager investing in a geared commercial property portfolio.


"Although money market investments are doing well on face value, the sharp weakening of the rand made this market's real value drop substantially while the value of the underlying capital dropped simultaneously."

Wessels points out that changes in the exchange rate are invariably echoed in prices.

"When the rand weakens, both imported and local goods become more expensive. Higher prices for local goods relate directly to the drop in the exchange rate as much of our local products incorporate imported parts. When the price of imported goods goes up, producers of local goods need to earn more locally to protect their real incomes. Thus a weaker rand leads to a general price increase in South Africa."

Wessels says he would under present circumstances prefer to invest in equities and property where bargains are on offer at much below real value.

He says geared property investments have being doing very well. When a currency weakens sharply, an investor should ideally have a geared investment in real assets (invest borrowed money along with his own in an asset that will hold its value in the long term).

"Keep in mind that as the value of cash holdings diminished, so did the real value of debt. No asset lends itself as readily to gearing as property and that is because no other investment asset is as real.

"Investors in geared property saw their debt burden reduce in real terms as the rand weakened. Thus they actually became wealthier while investors in cash or very liquid assets became poorer," Wessels concludes.

He points out that Capital Investments’ clients are invested in a geared portfolio of commercial properties and find themselves in the right place at the right time.


 
 
 
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