Listed property

Finweek English Edition - - INVESTMENT -

listed property tends to en­joy an in­verse re­la­tion­ship with in­ter­est rates. When in­ter­est rates fall, listed property booms.

The rea­son for this is that it gen­er­ally re­quires huge amounts of cash to build up a port­fo­lio of listed-property as­sets, which typ­i­cally range from commercial of­fice space to small re­tail cen­tres and shop­ping malls to build­ings that house Govern­ment de­part­ments. The im­pli­ca­tion is that listed-property funds of­ten have to take on fairly hefty amounts of debt to fund the pur­chase of new as­sets. The in­come earned by these as­sets (i.e. the rent paid by ten­ants) is then used to pay down this debt over time.

That’s why the pre­vail­ing in­ter­est rate is so im­por­tant. When bor­row­ing costs de­cline, listed-property com­pa­nies ef­fec­tively earn more in­come, which puts them in a bet­ter po­si­tion to re­ward their in­vestors through share­holder dis­tri­bu­tions. The re­sult is that shares in listed prop­er­ties tend to boom when in­ter­est rates de­cline and fall when in­vestors be­lieve rates are go­ing to rise. If that sounds sim­ple, that’s be­cause it is. That’s pre­cisely why South African bil l ion­aire i nvestor Natie Kirsh says property is the only sec­tor where even stupid people can make money. Of course, what he doesn’t men­tion is that it ’s also a sec­tor where even clever people can lose money – and lots of it, just ask Don­ald Trump. It’s be­cause the art of man­ag­ing a property port­fo­lio, cou­pled with be­ing able to read the ever-chang­ing so­cio-eco­nomic fac­tors that can inf lu­ence its value, is a far from sim­ple ex­er­cise. Just Google ‘Share­max’ if you want more in­sight into the risks that can ac­com­pany property in­vest­ments.

A good start­ing point for the prospec­tive listed-property punter is to first fig­ure out what sec­tor of the mar­ket you’re in­ter­ested in. Listed-property funds are not cre­ated equal and tend to tar­get vastly dif­fer­ent seg­ments of the mar­ket, with each fo­cussing on their own area of com­pe­tence and com­pet­i­tive ad­van­tage. Blue-chip property funds like Hyprop are gen­er­ally con­sid­ered the best de­fen­sive as­sets for con­ser­va­tive in­vestors who want the pre­dictable, in­come-gen­er­at­ing re­turns that come with listed property but with­out the vo­latil­ity that can ac­com­pany funds with a more var­ied spread of un­der­ly­ing as­sets. With pre­mium re­tail as­sets l ike Canal Walk, Hyde Park Cor­ner, Clear­wa­ter Mall and A-grade of­fice space like Glen­wood Of­fice Park in Faerie Glen in Pre­to­ria, Hyprop is the think­ing man’s property play. It might not shoot the lights out in terms of spec­tac­u­lar unit price growth, but it’ll keep pay­ing dis­tri­bu­tions even when times are tough.

If it’s high growth you’re af­ter, look no fur­ther than Fortress, which en­joys healthy ex­po­sure to the boom­ing town­ship re­tail mar­ket as well as non-metro re­tail cen­tres, both of which en­joy less com­pe­ti­tion than that of the over­shopped ma­jor met­ro­pol­i­tan lo­ca­tions. Re­silient and Ar­row­head are two other funds that en­joy ex­po­sure to prop­er­ties in less f lashier parts of the coun­try.

Black-owned and op­er­ated property funds like Re­bo­sis have the ad­van­tage of en­joy­ing greater ease of ac­cess to Govern­ment con­tracts than funds man­aged

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