Why do insurance companies invest in property?

Isn’t it strange that the very same people that try and sell you financial products for your retirement invest the money they receive from you into property! According to the House Price Index, South Africa has been rated the number one return on investment country in the world, with a return of 23.7% per annum.

Why on earth would anybody put their money anywhere else, but in property? It is simply a case that everybody wants your hard-earned money for themselves and they will quote all types of statistics and probabilities to put you off property as a sound investment.

“Buy to let” investment opportunities are normally townhouses that are bought by investors “off plan”. Once completed, the property is let to a tenant and in most cases at the current low interest rate, the bond will be covered by the rent received. This is where insurance companies love to “warn” investors that should interest rates rise, they might have to subsidise the bond. However, what they don’t tell you is that in the third year of ownership, your bond will easily be covered as rents generally go up 10% per year and even at a rate of 17.5% you will still be making money.

There are many scare tactics such as capital gains tax and interest rate hikes used by “opponents” of property investments. But the one thing they all fail to disclose is that irrespective of what happens, your house (bricks and mortar) will still be standing long after certain companies have disappeared. This leaves the shareholders and investors completely out of pocket or, after paying for years and years into a retirement fund, you just about get back what you put into it in the first place.

So if you want to retire financially fit, buy an income producing property, take out a life and disability cover only, increase your bond repayments by 10% and repeat this process every year. When you retire you will have an income plus a capital asset that increases all the time and should you die or become disabled, your dependents will have a fully paid up property providing them with an income. So you see, we do need insurance, but insurance companies need property to grow.

Article By: Anthony van der Riet - Realty Executives