© PLSA 2011
Asset
The capital item you invest in, for instance the physical property. Net asset is the value of the property less borrowings.
Capital gain
Increase in capital value of a property on which tax is payable, either when sold or deemed by tax rule to be incurred.
Capitalisation (Cap) rate
A ratio of the relationship between a year’s cash flow and the present value of the cash flow. The rate at which the net income of a building is capitalised into perpetuity to derive its market value. Cap rates are the property equivalent of the forward earnings yield of listed shares.
Gearing
Also referred to as leverage. A property owner’s debt as a percentage of the value of the property. Also called loan to value.
Initial yield
The net rental income from the first year of a property investment divided by the value of the property expressed as a percentage; also an indicator of risk.
Management agreement
A contract between an owner of a property and a property management firm to supervise the affairs of the property for periodic fee payments.
Property loan stock company
Also known as variable loan stock. A normal company that links its shares to debentures in the company and owns property.
Property unit trusts (Puts)
A listed vehicle designed for low-risk property investment and supervised by the Financial Services Board.
Real estate investment trusts (Reits)
The US version of property unit trusts and property loan stock companies that is becoming the world norm as property investment globalises.
Redlining
A lending institution’s refusal to lend money on property in certain locations. SA banks are no longer allowed to use redlining but can reject a loan on other grounds.
Reverse mortgage
Also known as a home income plan, a reverse mortgage is essentially a cash loan available to retirees against the value of their paid-up home.
Total return
The combined capital growth and income of an investment over a certain period. The Investment Property Databank (IPD) gives a bench-mark performance of investment property in SA and globally.