How, and why, to start investing in listed property

Private Property South Africa
Private Property Reporter

Statistics from the ASSOCIATION FOR SAVINGS and INVESTMENT SA show inflows of R4.6-billion into local property unit trusts for the year ended March 2011. Foreign investors are keen to get their hands on SA’s property stocks, and demand for local listed property stocks is increasing.

But what does this mean for the novice investor? What, exactly is listed property? And is investing in listed property a wise decision?

To start with, “listed property” simply means property assets that support unit trusts or other trade vehicles, which are listed on stock exchanges.

Deciding whether or not to invest in listed property requires an assessment of a property’s value offset against the investment risks and benefits. Benefits include building a diverse portfolio of investments, thepotential for a long-term growth in income and a relatively high income yield when compared with the broader equity market. In South Africa, listed property is considered one of the more “defensive” sectors of the equity market – which simply means that lease agreements predetermine the bulk of income for property funds, providing more predictable income streams than those of industrial, mining and financial companies.

In comparison to traditional investment in bonds, whose yields remain static, listed property yields have potential for growth. The listed property sector therefore produces high returns with low risk. South African listed property is outperforming most asset classes, both locally and globally. According to Estienne de Klerk‚ executive director at Growthpoint Properties, listed property achieved returns of 11.1%‚ compared with shares at 5.1% and bonds at 4.2% in the first five months of 2012.

However, with some 40 property unit trusts, loan stocks and REITs (real estate investment trusts) listed on the Johannesburg Stock Exchange, it is difficult to choose which companies to invest in.

Novice investors will be relieved to know that professional help is at hand. Members of the Financial Planning Institute are qualified to offer advice over a range of options. Remember, though, that financial planners will inevitably charge brokerage fees and, in some cases, commissions on profits. And, despite the best efforts of the Consumer Protection Act, there is a fair amount of fine print involved. Security is provided to consumers via the Financial Services Board, to which you can direct queries and complaints about the services being provided to you.

Alternatively, investing privately in a product such as Proptrax, with its unmanaged plans (ie, no broker is involved) can be a more lucrative scenario. Proptrax offers two options – one with weighted interests in the JSE’s top 20 performing listed properties, and one with moderated interests in the top 10 property indices. With Proptrax, you can start investing in listed property for as little as R1 000, or R300 on a monthly debit order.

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