The JSE and finance forum for South Africa
General Category => Shares => Topic started by: Mr_Dividend on April 25, 2015, 06:34:41 am
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Does it form part of:
Interest exemptions
• Interest from a South African source earned by any natural person
under 65 years of age, up to R23 800 per annum, and persons 65 and
older, up to R34 500 per annum, is exempt from taxation;
And therefore you are not taxed on your first R23 800 and then the rest added to income,
OR
Does it all go onto income?
I just cannot get a 100% answer.
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Hi,
No longer regarded as interest (so interest exemption doesn't supply) but for all intensive purposes - as rental income. Have a glance at this article for a brief explanation
http://www.moneyweb.co.za/archive/sa-reits-will-investors-benefit/
Give me a shout if you further details
Regards
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Thanks for that XXXXX - not the answer I really wanted, but cheers - at least I know.
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Suggestion. If you're invested in REITS, short to medium term, throw your R30k annual contribution limit into REITS (in ETF's) via a tax free savings vehicle. Its a break even or win - distributions will be tax free. Long term, you can look at switching depending on your preferences....
Also note that over time it has been suggested that the basic interest exemption will be removed.....
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Cheers XXXX - for me, as I live on income from shares - it's better that the REITS form the bulk of income to take advantage of not being taxed on your first R73K and using the TFSA for shares and save on the 15%.
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Mr Div. Very insightful. A question please. Where would you open a TFSA where you can buy a REITS such as HYP?
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Both absa stockbrokers and easy equities have good deals on TFSA accounts. You will not be able to just buy HYP - for a tfsa it will have to be bundled in a ETF. Great share, BTW.
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Hi Mr Div. Sorry, last stupid question for the night. Which ETF? Ptxsty perhaps?
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Sorry, cannot help you there - you will just need to trawl through them. For my tax a prefer to buy separate and keep them in a normal account and use them as income.
BTW - if you thinking of a long term portfolio try to jot down on paper what you want it to look like in regards to companies/sectors/ how many /is yield important/ tax implications. And, of course, how much you will be able to invest say in a 5 year period.
Just an idea, but I find it was easier having an end goal, then filling in the pieces as I got money, than building a portfolio brick buy brick. I found it helps planning and stopped me buy some things on impulse.
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Perfect advise again.
I have the plan. It always helps me bouncing these ideas others.
TFSA gives a nice curveball. I love HYP. Been so good to me so far. I call it my bedrock share in my main portfolio. :TU: :TU:
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There seems to be more and more interest in REITs around here lately. Must be your fault Mr Div!
Does anyone feel like doing a guest post on the blog for one of the next few months summarising everything into one place for everyone? I imagine there will be a lot of interest in things like tax, dividends, what percentage of portfolio to invest in REITs etc. I'm sure there are a bunch of other points that we need to know about too.
I'm hoping there will be a volunteer, otherwise I'll have to ask a million questions before I write it. Any takers?
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Important to note is the correlation between REITS and bonds. When bond yields rise in an interest rate hiking cycle, the price of the bonds declines.
For instance a long term bond purchased at 8% (coupon rate), with a nominal value of 100 and issued at 100 means you will get
8X100÷100 = 8%
Now if interest rates rise to say 9% an investor in a 8% long term bond is no longer prepared to accept 8%. The market value of the
bond is adjusted to take account of the higher interest rate scenario (9%)
i.e an increase from from 8% to 9% = 12,5% increase.
This results in the price of the bond no longer being 100 but:
100-11,1111% = 88,88 (12,5 ÷ 112,5 = 11,1111)
So the investor is taking pain.
The correlation between bond yields and REIT yields means that REIT's will react similarly in a rising interest rate cycle. But unlike with bonds which have a fixed yield right to maturity, REITS increase their distributions annually and usually recover lost ground fairly quickly.
A downturn in the economy will also not be so good for REIT's - watch the vacancies.
My advice:
Consider only those REIT's that have offshore exposure and then primarily those with European/East European exposure as their interest rate hiking cycle is way behind that in the USA and ZA - interest rates there are ultra low and property companies there can borrow at 2-3% to invest in proerties yielding 6/7%. (NEPI/CCO/RPL to name a few). Plus they are Rand hedges !
In ZA, do what gcr did with Woolies, i.e invest in those REITS with property portfolios located in areas where the wealthy shop and live - they are immune to 'hard times' - think HYP.
RES is a special case, they have been ultra successful in nodes neglected by others outside the metros. Also they have meaningful holdings in NEPI,Rockcastle,FFB,Capital.
http://www.moneyweb.co.za/investing/property/listed-property-still-the-top-performing-asset-class/
Note: valuations generally are quite high now, so with a few exceptions may want to wait a while before buying.
I wanted to post this under My Beginners Portfolio, so that gcr and Fawkes85 can read it.
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That is a lot of complicated maths which I will never be able to wrap my head around. But luckily I do not have to. Like I have said a few times now I LOATHE debt. I don't make it and i don't give it. Being invested in bonds is essentially handing out debt so I will never do it. Thanks for the explanation nevertheless. I do only invest in either fully offshore REITs (RPL) or REITs with offshore exposure (TEX). I do it for both financial and political reasons.
I think one thing you should add the though is the added benefit of a Rand that will incrementally decline against GBP, EUR and USD. So not only will your dividend income grow from the companies gradually increasing their annual dividend payouts but it will be compounded by a weakening Rand. That is how I see it at least.
@Patrick I wouldn't have minded to take a stab at writing a blog post about being invested in REITs but I still know too little to really give anything of any real worth. Maybe nag Mr_D to have a go?
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That is a lot of complicated maths which I will never be able to wrap my head around. But luckily I do not have to. Like I have said a few times now I LOATHE debt. I don't make it and i don't give it. Being invested in bonds is essentially handing out debt so I will never do it. Thanks for the explanation nevertheless. I do only invest in either fully offshore REITs (RPL) or REITs with offshore exposure (TEX). I do it for both financial and political reasons.
I think one thing you should add the though is the added benefit of a Rand that will incrementally decline against GBP, EUR and USD. So not only will your dividend income grow from the companies gradually increasing their annual dividend payouts but it will be compounded by a weakening Rand. That is how I see it at least.
@Patrick I wouldn't have minded to take a stab at writing a blog post about being invested in REITs but I still know too little to really give anything of any real worth. Maybe nag Mr_D to have a go?
Was mentioned. I don't invest in bonds either, but to understand REITS you would have to take into account the yield on long term bonds as well. I tried to explain why.
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@Patrick I wouldn't have minded to take a stab at writing a blog post about being invested in REITs but I still know too little to really give anything of any real worth. Maybe nag Mr_D to have a go?
For myself, I really do not know enough about them, nether am I experience enough. I pick shares using the shotgun approach instead of delving through the companies financials - not a person that should be giving advice - but I do give my opinion.
I have also tried to get across that the dividend method works for me and I think is also suitable for people reaching/ in retirement that needs to safe guard capital and income - but personally, for most young people, those with jobs and those that have substantial investments - I would not be seeking yield but capital growth.
I think moonraker seems to have better knowledge - maybe he can be arm twisted...
But for those want a bit more to read: Financial Mail is always pretty good
http://www.financialmail.co.za/specialreports/propertyhandbook2014/
And then this was a couple of weeks ago:
http://www.financialmail.co.za/coverstory/2015/10/22/mall-mania-why-the-boom-is-losing-steam
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I have also tried to get across that the dividend method works for me and I think is also suitable for people reaching/ in retirement that needs to safe guard capital and income - but personally, for most young people, those with jobs and those that have substantial investments - I would not be seeking yield but capital growth.
I dunno. I am working but I feel that even though I save as much as I possibly can it just isn't as much as I would like to save and invest. So by investing in high dividend yielding REITs I have so far insured that over the next year I will get a whole month's extra salary through dividends. A whole month's extra salary to invest. Which will in turn increase the dividends I will earn the year after if combined with another full years investing. I think if I keep doing that for 10 years I will be earning a pretty decent amount in dividends by the time I reach 40. But I dunno. Still deciding how I will go about it.
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Just look at future dividends as well - with REITS 8 - 10% growth is normal and decent. But some shares, although starting yields are not great, grow them pretty rapidly - 20% - 30%. Thinking (the ones I have) Capitec, Mr Price, PGR - all are now giving me decent dividends on my original investment and pretty good growth on the capital - and that's under 3 years. Dividends are great, but dividends AND good growth, well thats fantastic.
Just don't miss out on Aspen, taste, Trustco, discovery, adapt and all the other great companies we have - -in 20 years time you will be laughing - and dividends will come. IMO of course.
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Further to my reply #12 where I outlined the close correlation between bond yields and listed property yields, it is a given that interest rates will go up in ZA and a December US increase seems more likely now than 1 month ago. Furthermore we will probably be downgraded by the ratings agencies (S&P and co.). This will move bond yields up and consequently listed property yields, meaning a drop in the prices of listed property quoted on the JSE. In other words a bad time to buy REITS. Only consider those with non ZA portfolios for reasons already mentioned previously. I have a mix of both but if selling the ZA focused ones my CGT would be prohibitive.
This just a mild warning to anyone wanting to buy ZA focused REITS now - there will be better opportunities once interest rates are close to topping out.
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;D
Ok, now I know what u talking about . A Real Estate Investment Trust - REIT. Had no frikkin idea .....
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@Fawkes85
Applies to US in particular but would also apply to Germany/UK.
The idea that rising interest rates are always bad for REITs may need another look. (https://www.reit.com/news/reit-magazine/may-june-2015/misconceptions-about-reits-and-interest-rates)
Something that Wayne McCurrie doesn't seem to understand.
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@Fawkes85
Applies to US in particular but would also apply to Germany/UK.
The idea that rising interest rates are always bad for REITs may need another look. (https://www.reit.com/news/reit-magazine/may-june-2015/misconceptions-about-reits-and-interest-rates)
Something that Wayne McCurrie doesn't seem to understand.
Thanks. Even though me TEX position has taken a HUGE knock over the last month I have no intention of selling. Who is Wayne McCurrie by the way?
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Thanks. Even though me TEX position has taken a HUGE knock over the last month I have no intention of selling. Who is Wayne McCurrie by the way?
He is from Momentum Wealth Portfolio Management and features regularly on Business Day TV's Stock Watch.
Stock Watch (http://www.businessdaytv.co.za/shows/stockwatch/2015/12/03/stock-watch-pick)