Most Mauritians are conservative and prefer to park their savings in a deposit account. Yet, property investment can be an easy technique to reap profits over many years and generate capital growth. Buying and holding a house is often the most popular investment many people make. Nevertheless, it does not bring any revenue to the owner and finance charges may become onerous at times of high interest rate. In addition, some owners prefer to retain their properties unrented over substantial periods. In contrast, investing in an apartment, an office space or a retail outlet which is rented out can be a good way to accumulate wealth.
As a stock that pays dividends, property investrnent can provide the investor with a stable and steady income stream over several years. For instance, if you buy a property and rent it out, it gives you with a conside¬rable amount of income during its life span. Additionally, there are several financing facilities offered by banking institutions at competitive interest rates which allows you to match your rental income streams with the interest due and capital repay¬ments.
Moreover, your property appreciates in value over time because of inflation. Basically, the construction materials, labour costs, building permits and fees paid to profession ais increase over time, thus making it more expensive to replace an existing property.
The location of your property unquestionably will impact on how fast it appreciates in value. For instance, proximity to services such as schools, bus stations, banks, police, shop¬ping malls and hospitals will result in fast appreciation.
As a rule of thumb, it takes about 8 years for a property to double in value. Compared to shares traded on the stock market which historically are highly volatile, property shows low volatility.
Usually, the rental you charge to your tenant is indexed to inflation. ln essence, your loan remains constant over time whereas inflation will drive up rents.
As a company, there are numerous tax benefits such as deductions for interest paid on loan, maintenance costs, insurance, management tees and capital allowances.
However, the biggest disadvan¬tage associated with property investment is illiquidity. Your cash is locked in brick and mortar. It may take several months to sell your property and convert it into cash.
Property investment can also be troublesome when the property remains unrented over an extensive period of time. In these circumstances, all the maintenance costs are borne by the landlord.
Additionally, bad tenants may seriously damage the property, refuse to pay rent or refuse to leave. Disputes take time to be resolved and in the meantime, maintenance costs and legal fees are borne by the owner. Over-supply of property can also put pressure on landlords to review their rental down¬ward.
One last disadvantage is that when the building is in declining stage of its life cycle, the maintenance costs shoot up substantially and very often, tenancy turns down. Then, the asset should be disposed.
Source: Immobilier & Construction de Janvier & Février 2010
