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Both listed property and the direct property market (the buy-to-let market) offer investors high yields, which are ideal if you're looking for regular income. The decision whether to invest in direct or listed property rests on the profile of the individual (e.g. age, access to capital, risk appetite).
Listed property stocks have equity-like characteristics, one of them being high liquidity as they are easily tradeable on the JSE. Direct property is much less liquid which makes it a better option if you do not need cash soon and have a longer investment horizon. It's also less risky and less volatile than listed property.
If you don't have a lot of capital to invest, you could consider listed property because of its low unit value. Direct property on the other hand, requires large capital amounts to invest. Only investors with deep enough pockets or with significant debt facilities can participate in this market.
Remember that funds listed on the JSE mostly offer investors exposure to commercial property (hotels, shopping centres, offices, warehouses), and not the residential property market. So if you are considering investing in residential property, you need to do so directly in the market.
Residential property investments may carry higher risk profiles because you will be dealing with individuals as tenants, which may carry higher risk profiles than businesses that are the tenants in commercial property.
“Listed property has really been driven higher by strong bond yields," says Shala Ramokolo from Sanlam. "As bond yields strengthened, so did listed property yields. At the same time, the sector has also enjoyed demand from foreign investors looking for yields.”
Future forecasts
So how does the outlook for listed property stack up versus buy-to-let?
According to research manager at Rode & Associates, John Lottering, flat rentals have shown mediocre growth of two percent nationally from a year ago. House rentals are even worse at one percent, and townhouse rentals are contracting at one percent.
“If you do opt for buy-to-let, you must make sure your income stream will outperform the interest you’ll have to pay on the bond. You need to make a good income return on the property," says Lottering. Investors can expect a gross income yield of around six percent on a flat worth R1-million, depending on where the flat is situated. That would result in a rental income of R5000 a month on a R1-million investment.
Lottering says, “There is not even a hesitant stirring (in the residential market). So while we don’t foresee a decline, growth will be moderate – certainly less than inflation. We would not advise buying a house, or any development of any property, at this stage.”
Property experts say a buy-to-let recovery may only materialise at the start of the next interest rate cutting cycle, which could be a number of years away yet. As a result, Lottering also prefers investing in listed property in comparison to direct property for renting out.
But, before deciding always asses your own needs and limitations, like your investment time period.
Listed property stocks have equity-like characteristics, one of them being high liquidity as they are easily tradeable on the JSE. Direct property is much less liquid which makes it a better option if you do not need cash soon and have a longer investment horizon. It's also less risky and less volatile than listed property.
If you don't have a lot of capital to invest, you could consider listed property because of its low unit value. Direct property on the other hand, requires large capital amounts to invest. Only investors with deep enough pockets or with significant debt facilities can participate in this market.
Remember that funds listed on the JSE mostly offer investors exposure to commercial property (hotels, shopping centres, offices, warehouses), and not the residential property market. So if you are considering investing in residential property, you need to do so directly in the market.
Residential property investments may carry higher risk profiles because you will be dealing with individuals as tenants, which may carry higher risk profiles than businesses that are the tenants in commercial property.
“Listed property has really been driven higher by strong bond yields," says Shala Ramokolo from Sanlam. "As bond yields strengthened, so did listed property yields. At the same time, the sector has also enjoyed demand from foreign investors looking for yields.”
Future forecasts
So how does the outlook for listed property stack up versus buy-to-let?
According to research manager at Rode & Associates, John Lottering, flat rentals have shown mediocre growth of two percent nationally from a year ago. House rentals are even worse at one percent, and townhouse rentals are contracting at one percent.
“If you do opt for buy-to-let, you must make sure your income stream will outperform the interest you’ll have to pay on the bond. You need to make a good income return on the property," says Lottering. Investors can expect a gross income yield of around six percent on a flat worth R1-million, depending on where the flat is situated. That would result in a rental income of R5000 a month on a R1-million investment.
Lottering says, “There is not even a hesitant stirring (in the residential market). So while we don’t foresee a decline, growth will be moderate – certainly less than inflation. We would not advise buying a house, or any development of any property, at this stage.”
Property experts say a buy-to-let recovery may only materialise at the start of the next interest rate cutting cycle, which could be a number of years away yet. As a result, Lottering also prefers investing in listed property in comparison to direct property for renting out.
But, before deciding always asses your own needs and limitations, like your investment time period.
