So you want to get into prop­erty?

Finweek English Edition - - UNIT TRUSTS -

FOR ALL THE JAR­GON that ac­com­pa­nies in­vest­ment prod­ucts, the sim­ple rea­son the ma­jor­ity of peo­ple buy in­vest­ments is to en­joy al­ter­na­tive sources of in­come. For that rea­son, in­vest­ment in fixed prop­erty, prop­erty syn­di­ca­tions and prop­erty unit trusts has proven ex­cep­tion­ally pop­u­lar over the past 10 to 15 years. In­vestors have en­joyed an as­set that’s kept pace with in­fla­tion and in the case of prop­erty unit trusts has de­liv­ered con­sis­tent and pre­dictable dis­tri­bu­tion yields.

That’s re­flected in the SA Listed Prop­erty In­dex re­cently touch­ing an all-time high and, ac­cord­ing to Stan­lib, of­fer­ing a for­ward div­i­dend yield of 8,3% – which is pretty tough to ar­gue with. This rise in the in­dex has been at­trib­uted to for­eign as­set man­agers seek­ing higher yields they can’t get in their home mar­kets.

South Africa’s real es­tate unit trust sec­tor’s su­pe­rior re­turns weren’t lim­ited to the past quar­ter, says Ryk de Klerk, who puts to­gether the Plexcrown fund rat­ings. He told in­vestors at a re­cent up­date: “The sec­tor is also the leader over three and five years, with re­turns of 22,1% and 15,9%/year re­spec­tively.”

With banks be­com­ing stricter about what they’re lend­ing, the ac­cess points for many re­tail in­vestors have be­come sig­nif­i­cantly nar­rower, mean­ing many are left with the op­tion of buy­ing listed prop­erty, a prop­erty unit trust or one of the PROPTRAX-listed ex­change-traded funds (ETFs).

If that’s your start­ing point, the ob­vi­ous ques­tion is which do I choose? First in­stincts are to go with the pas­sive ETFs, sim­ply be­cause it’s cheaper and – let’s be hon­est – a 25%/year re­turn over the past three years is hard to ar­gue with.

How­ever, a closer look at the man­aged port­fo­lios over the same pe­riod might make you think twice. For ex­am­ple:

achieved 90%.

Tracker Fund de­liv­ered 85%. was hot on its heels at 84%.

In­vestors should bear in mind the Stan­lib fund is also de­liv­er­ing that re­turn on the back of a to­tal ex­pense ra­tio of 1,5%, against the 0,86% cost base the PROPTRAX ETF is charg­ing. The “kicker” for the Stan­lib prod­uct has been its abil­ity to grow the in­come line of its of­fer­ing over the three-year pe­riod. That alone has con­trib­uted around 30% of the growth over the past three years.

Stan­lib prop­erty guru Keillen Ndlovu says div­i­dends from listed prop­erty are ex­pected to rise around 6% this year, which will just about keep par­ity with in­fla­tion. That’s an im­por­tant mea­sure to keep your eye on, be­cause if you’re in­vest­ing for in­come re­mem­ber you need an in­vest­ment that’s grow­ing faster than the value of your money is be­ing eroded.

How­ever, Ndlovu did warn that with toll roads, prop­erty taxes and ris­ing elec­tric­ity prices start­ing to bite, these ex­penses could eat into the abil­ity of land­lords to fill their prop­er­ties and push through rental in­creases. var­i­ous sec­tors, Ndlovu noted re­tail was “show­ing stronger fun­da­men­tals than the of­fice and in­dus­trial sec­tors” – point­ing out while shop­ping cen­tres were see­ing bet­ter foot traf­fic, there con­tin­ued to be an over­sup­ply of of­fice space.

It isn’t of­ten our rec­om­men­da­tion is to go ac­tively man­aged prod­uct over pas­sive but the cur­rent prop­erty sec­tor may just be an ex­cep­tion to the rule.

Keillen Ndlovu

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