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COLLECTIVE INVESTMENT IN REAL ESTATE.

Real Estate is desired by many as a preferred investment asset with the dual benefits of capital appreciation and yearly income flows to the investor.

Real Estate portfolios are stable, predictable where patters and trends can be projected and high yields can accrue from capital appreciation and rental income. It still serves as the best source of retirement income as due to the constant demand for land, real estate in major locations continues to appreciate over the years.

 

Purchasing real estate is capital intensive and ordinarily would require some form of financing or leverage to purchase. As an avid property professional I am always at a loss on “cash payments’ for real estate purchases in these parts. In the absence of an organised and effective mortgage system in our country, majority of real estate purchases are on a cash and carry basis thereby precluding large numbers of prospective investors the opportunity to invest in these markets.

 

To circumvent this anomaly, collective investments provide a more viable option for a group or groups of investors to own and invest in real estate. Another term to describe this is called Real Estate Syndication. By Syndication, funds of few investors or in most cases several investors are pooled and aggregated to fund the purchase of the identified property. Each group of investors or members is called a Syndicate.

 

Prior to arranging a syndicate, terms and conditions detailing the objectives of the investment would be drawn out and agreed, that is, equity contribution per investor, investment tenor, expected yields on capital appreciation after the holding period, projected rental returns if applicable etc. The structure of the syndicate also varies with the most preferred structure being a company limited by shares functioning as a special purpose vehicle. This allows for all investors to own equity in the acquisition company, limit their liability via the corporate structure and also for efficient tax management. Transaction costs such as brokerage fees, legal fees, title registration costs are also spread and shared across board.

 

When the agreed objectives of the syndicate are achieved after the agreed investment tenor, property is disposed and syndicate wound up subject to the required regulatory approvals obtained. Capital returns accrued is re-distributed among the investors according to each’s equity contribution and the terms of the investment.

 

Syndicates are best professionally arranged and managed by a recognised Syndicate Manager or Asset manager with proven experience and competence in arranging and managing such syndicates.