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BY GEORGE MOUSKIDES
Because of the economic crisis, retirement funds face serious problems with regards to their survival. The loss of value of investments, on the one hand, and the demographic threat on the other, has created serious risks for the sustainability of these particular funds.
Many employees, especially those that do not work in the government, semi governmental organisations and the banking sector, do not view the subject of pensions with the necessary gravity and in essence do not make any plans.
Having attended a seminar organised by the Muhanna Foundation on “Ageing Demographics under the Shadow of the Crisis” we realised the magnitude of the problem.
The signals from the seminar were not very encouraging. What are the facts today?
People live longer, the average life span has increased considerably and by extension, proportionally people work for fewer years than previously. As a result many of the retirement plans face survival issues. It is common knowledge that the Social Insurance Fund itself with these new facts faces serious problems and it surely doesn’t provide pensions that will secure pensioners a decent retirement.
What should be done? As a start, the state should take immediate action before it is too late, to support the Social Insurance Fund (i.e. increase age of retirement, etc.)
Therefore, future pensioners must make their own plans to secure a respectable lifestyle when they retire.
As an alternative solution to the retirement funds offered by insurance companies, we propose investments in property, especially those that offer rental income that would supplement the social insurance pension payments.
For example, a 40 year old private sector employee or a self-employed individual buys a property (apartment, shop) to rent. To afford the purchase he makes a loan repayable over 25 years. In the initial years the rent that he collects barely covers the loan instalment. Every two years the rent increases by roughly 10% (recent regulation concerning rental properties has set a cap of 8% every two years whereas previously it was 14%). The instalment of the loan remains constant. Thus the investor after the first two years will also put some money in their pocket. When the investor turns 65, the loan will have been paid off thus all the rent will remain in their hands as a pension.
We insist that property remains a good investment proposition as it offers regular income and has a good potential for capital appreciation over time. Alternatively, upon retirement, the investor can sell the property and use the money anyway he wants. Traditionally, rental properties such as apartments, offices, shops, etc., have experienced capital appreciation ranging from 5 to 10%, depending on location, building condition, etc.
As a conclusion or rather a lesson from the above, is that everyone, irrespective of the sector in which they work, should make their plans to ensure a respectful retirement. And certainly for us a reasonable plan is an investment in the property sector. The type of property and the area to be selected requires serious evaluation.
George Mouskides is Chairman of the Association for the Promotion of Property Development and Manager, Fox Smart Estate Agency.
