Property unit trust query

2012-05-16 12:54

A Fin24 reader asks:

I will be retiring soon. Is it advisable to put a great deal of pension money in property unit trusts (PUTs)?

Don Richter, a personal finance specialist at PSG Konsult, responds:

First of all, I would like to say that if you try to put a great deal of money in property unit trusts, you will be restricted by Regulation 28 of the Pension Funds Act. This sets out the maximum exposures that retirement funds may have on various asset classes.

Previously, this was monitored at retirement fund level, meaning that investors could invest in unit trusts of their choice, provided that the retirement fund's total holdings complied with the regulation.

Recent revisions require members to comply with these asset class limits at an individual account level. The most important asset class limits in Regulation 28 are 75% in equities, 25% in property, and 25% in foreign assets.

Investors also need to differentiate between property companies, PUTs and property loan stock companies when they make their investments.

PUTs are technically the safer investment as they are governed by regulation which limits their borrowing capacity to a maximum of 30% of the value of assets under management.

PUTs enable investors to share in professionally managed property portfolios without any of the disadvantages of direct property ownership. There is little doubt that property is an appropriate investment for retired investors, especially within the ambit of a tax-friendly environment enjoyed by retirement funds.

 - Fin24

  • Loua - 2012-05-17 19:57

    Don is right while the client is in the pension fund an investor will be restricted by Reg 28. But once an investor retires, they will not be restricted by Regulation 28. Post Retirment you can invest 100% into Property if you wish too i believe. Regulation 28 applies to compulsary money pre retirement i.e. in RA's, Preservation Funds, Pension Fund and Provident funds. I hope this helps.

  • Andrew Delmont - 2012-05-19 13:31

    Not true!! Regulation 28 covers pre- retirement products only - pension, provident funds, preservation funds and retirement annuities. Post retirement products are NOT covered by the legislation (living and conventional annuities) Investing in PUTs

  • Andrew Delmont - 2012-05-19 13:32

    Investing in PUTs is a good idea but not solely. The strong performance of the last 10 years is no guarantee of a similar return in the next 10 years. Property is far more fully priced today as compared to 10 years ago

  • theo.delange.5 - 2012-05-23 14:16

    The reader wanted to know wheteher it is advisable. This question has not been answered.

  • Gavin - 2012-05-24 09:38

    You are right Loua and Andrew - once the money is transferred to an ILLA it is not subject to Reg 28. To my mind this is an anomoly as most people still need the protection from making a wrong choice(s)when it comes to diversifying their ILLA portfolios. Asset class and geographic diversification is vital to protect downside. Theo notes that the readers original question is not answered. Some might say that at that at this stage of the property cycle some exposure in a diversified portfolio is appropriate - perhaps about 15%. Certainly not 100%

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