Retirement savings: Why property ownership is not enough

There is always a chance that property markets don’t rise like you had hoped, or that prices are depressed just when you want to sell. Picture: Greta Hoffman/Pexels

There is always a chance that property markets don’t rise like you had hoped, or that prices are depressed just when you want to sell. Picture: Greta Hoffman/Pexels

Published Nov 13, 2023


Many South Africans are turning to property investment as a way of supplementing their retirement savings – and it is not only affluent owners going this route.

In light of the uncertain and volatile nature of investment markets, there is a growing need to enhance retirement savings beyond employee pension funds or retirement annuities.

And property, if approached with caution, can serve as a valuable asset in a retirement investment plan.

Samukelo Zwane, head of product development at FNB Wealth and Investments, says many individuals with retirement savings plans in place appear to be utilising property as a way of diversifying their investments and balancing the volatility that often characterizes equity investments.

This trend was evident in the recent FNB Retirement Insights survey which reveals that 17 percent of survey respondents below the age of 60 use property as a retirement savings vehicle, while 11 percent above the age of 60 have property as an asset class in their retirement portfolio.

While most respondents who include property in their retirement plans are in the emerging affluent, affluent, and high-net-worth categories, he says there was a healthy representation of property in the retirement plans of lower-income South Africans under the age of 60. These include people in the entry banking (11 percent) and middle-income (21 percent) categories.

“Given that the proportion of respondents who use property as a pre-retirement savings vehicle is higher than that of those who use direct share investments (across all income categories), the popularity of property as a retirement savings vehicle is clear.”

While there is an affinity for property in a significant proportion of pre-retiree investment portfolios, Zwane says the question is whether property does indeed make for a good retirement investment. And, unfortunately, there's no one-size-fits-all answer as the decision to invest in property for retirement hinges on individual circumstances and income needs after retirement.

Diversification across various investment types and assets is also important in retirement planning. Although property undoubtedly holds value as an asset class for many individuals, he underscores the need for caution and a clear understanding of the financial implications of retirement.

“Owning physical, tangible assets appeals to many as they feel a direct and personal sense of ownership, which also gives them more of a sense of control over their investment. And that has made many see property portfolios or investments as a type of life raft, meaning that if the rest of the plan or investment portfolio does not work out, they have physical stores of value to fall back on."

However, you should not allow property ownership to lull you into a false sense of investment security, though.

"Buying a physical property, like a residence or a commercial building, can be a good investment if market prices continue to rise, and if that’s the case, the property could be sold for a handsome profit down the line or rented out to achieve a steady rental income in retirement."

But Zwane warns that there is always a chance that property markets don’t rise like you had hoped they would, or that prices are depressed just when you want to sell. He also points to the often-significant costs involved in buying and owning a property, including transfer duties, rates, levies, and ongoing maintenance, not to mention that the sale of an investment property triggers Capital Gains Tax.

There is also the possibility that your tenant may default or that you are unable to rent your property out for a prolonged period, which would mean you don’t earn any income from it for that time period. Or, if it’s a commercial property, a decline in the industry in which your tenant operates could have a negative knock-on effect on your rent payments. All of this could spell disaster if that rent is a large part of your retirement income.

Despite these risks, Zwane is positive about the potential for property to add value to a retirement investment, provided it isn’t the only income generator and forms part of a wider selection of retirement assets, including a pension or retirement annuity.

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