Property unit trusts (PUTs), as a proxy for property performance, have generated a 14,9% return in the year to end-March, sharply outperforming bonds, says Debbie Prinsloo of Investment Solutions, the country’s largest multi-manager.
Although historically bonds and property returns have closely tracked each other, over the past five years yields from listed property have averaged 15,2% against 13,4% from bonds.
“The outlook for SA listed property (excluding Liberty International, which comprised approximately 66,8% of the Real Estate Index on the JSE Securities Exchange (JSE) at 31 March 2003) remains favourable,” says Prinsloo.
Forecast returns for listed property are expected to be around 15% per annum, according to Marriott Asset Management, the underlying asset manager appointed by Investment Solutions Property Portfolio.
“This yield suggests property is offering better value than that expected from the bond market,” says Prinsloo.
The recent poor performance of equities locally and internationally and volatile markets have motivated investors to consider more secure and stable investments, such as bonds. However, listed property, such as PUTs and property loan stock (PLS), is apparently regaining popularity.
“Listed property offers the potential for capital and income growth. Its ability to deliver a predictable earnings income stream is probably its major attraction for risk-averse investors, particularly in unpredictable markets,” she says.
Prinsloo lists other significant reasons why listed property is an attractive and viable asset:
An investment in listed property is an investment in tangible assets;
Investments can be diversified into prime industrial, commercial and/or
retail properties;
The recent upheavals in the market have confirmed the inherent stability of
listed property;
The PUT and PLS sectors trade at discounts to net asset value, i.e. they are
undervalued and
The listed property sectors of the JSE are trading at favourable forward
yields.
She adds: “Property’s low correlation to other asset classes, other than bonds, provides good diversification to an investment portfolio. However, in such volatile markets, the fundamental principle of diversification across the major asset classes — cash, bonds, property and equities, locally and internationally — must be kept in mind when considering any asset class. – I-Net Bridge