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