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Statistics from ASISA show net inflows of R4.6 billion into local real estate unit trusts for the year ended March 2011.
The inflows into local real estate unit trusts have coincided with an increase in foreign ownership in certain listed property stocks. Aggressive pricing of recent listings also suggests that institutions are demanding more listed property stocks. Given these trends, should you consider investing in SA listed property?
Basics for new investors
Listed property refers to the securitised interest in underlying physical property. In other words, you can join other investors and spend money on a vehicle such as a unit trust, and have exposure to the property investments that underpin this. This interest is listed on stock exchanges, which makes it easy to trade.
In South Africa, the underlying assets of listed property are largely commercial rather than residential properties. These assets include shopping malls, industrial warehouses, and both high and low rise offices.
Why is this a popular investment choice?
The investment case rests on the balance between the valuation of property, the investment risks and benefits. These advantages include investment diversification, a relatively high income yield and listed property’s defensive qualities. Its valuation essentially represents the price one pays for the future income stream from property.
SA Listed Property may be considered one of the more defensive sectors of the broader equity market. Lease agreements predetermine the bulk of income for property funds, supposedly providing more predictable income streams than typical industrial, mining or financial companies.
Investors in local listed property should receive an income yield close to 8.5% over the coming year. This far exceeds the yield in money market funds of around 5.5%.
Property investors also stand to benefit from long-term growth in income, which is not the case for investors in cash or fixed income securities. In addition, the high income yield on property when compared with the broader equity market (of around 3%) adds to the defensive qualities of the sector.
A professionally managed listed property portfolio can be an important diversifier within multi-asset class portfolios or to existing direct investments in property.
Where's the risk?
Investment risks in listed property include a sell off the bond market because property yields have historically been correlated with bond yields.
Deterioration in the outlook for rental growth also presents downside investment risk, for example, due to a weaker economic environment or excessive commercial property development.
Are you thinking of investing in property? What has motivated you to make this decision?
The inflows into local real estate unit trusts have coincided with an increase in foreign ownership in certain listed property stocks. Aggressive pricing of recent listings also suggests that institutions are demanding more listed property stocks. Given these trends, should you consider investing in SA listed property?
Basics for new investors
Listed property refers to the securitised interest in underlying physical property. In other words, you can join other investors and spend money on a vehicle such as a unit trust, and have exposure to the property investments that underpin this. This interest is listed on stock exchanges, which makes it easy to trade.
In South Africa, the underlying assets of listed property are largely commercial rather than residential properties. These assets include shopping malls, industrial warehouses, and both high and low rise offices.
Why is this a popular investment choice?
The investment case rests on the balance between the valuation of property, the investment risks and benefits. These advantages include investment diversification, a relatively high income yield and listed property’s defensive qualities. Its valuation essentially represents the price one pays for the future income stream from property.
SA Listed Property may be considered one of the more defensive sectors of the broader equity market. Lease agreements predetermine the bulk of income for property funds, supposedly providing more predictable income streams than typical industrial, mining or financial companies.
Investors in local listed property should receive an income yield close to 8.5% over the coming year. This far exceeds the yield in money market funds of around 5.5%.
Property investors also stand to benefit from long-term growth in income, which is not the case for investors in cash or fixed income securities. In addition, the high income yield on property when compared with the broader equity market (of around 3%) adds to the defensive qualities of the sector.
A professionally managed listed property portfolio can be an important diversifier within multi-asset class portfolios or to existing direct investments in property.
Where's the risk?
Investment risks in listed property include a sell off the bond market because property yields have historically been correlated with bond yields.
Deterioration in the outlook for rental growth also presents downside investment risk, for example, due to a weaker economic environment or excessive commercial property development.
Are you thinking of investing in property? What has motivated you to make this decision?
