Listed property is a good long term play

South Africans who invested in listed property would have earned excellent returns over the past eight years. And, while the phenomenal annual rates of return of up to 60% experienced in the past may be slowing, the yields on listed property continue to present a solid long term investment option for investors, particularly those who pay low or little tax.

This is according to Richard Anderson, senior portfolio manager at Sanlam Investment Management (SIM), who manages SIM’s R1.3-billion property fund. He says, “SA listed property held up remarkably well during and after the sub-prime crisis because listed property companies generally had much sturdier business models and didn’t fall prey to the same overdevelopment and gearing experienced elsewhere in the world property market.”

In relation to bonds, listed property offers relatively high - and growing – yields. “While property yields tend to be somewhat lower than yields on bond funds, yields rise annually as a result of contractual rental escalations, which currently range from six percent to ten percent. For this reason, the asset class is particularly suited to elderly investors, who may pay little tax, and charities that are exempt from taxes.”

He says that for younger investors, the equity-like characteristics of the asset class are attractive. “Listed property offers capital growth, albeit at a slower rate than is likely from equities, given that income in listed property is fully distributed rather than reinvested.”

Anderson says the industry is likely to undergo various changes in the future and these could further boost demand for the asset class. “Currently SA investors can either invest in a property unit trust (PUT) or property loan stock (PLS) but these investment vehicles are largely unknown to international investors, so to attract more foreign investment, the industry is planning to amalgamate the two instruments into a structure called Real Estate Investments Trusts (REITS), which is the global standard.

“So notwithstanding prevailing market conditions, it is worth having long-term exposure to listed property because of its diversifying qualities and its yield; the fact that listed property exposure is asset-backed, with physical assets underlying the holdings, and given the industry’s recent resilience to adverse global economic conditions, which highlights that listed property funds are well managed and fundamentally sound investments,” concludes Anderson.