Let’s begin with what is “listed property” this is simply unit trusts that invest in a variety of property instruments listed on the NSX or JSE. Rather than holding any physical property, investments are made in shares of listed property companies. These are selected property shares, which are identified on the basis of growth potential, quality of the entities and the value they present.
Investments can also be made into real estate investment trusts (REITs) which are companies that own and ordinarily operate, income-producing real estate ranging from office and apartment buildings to warehouses, hospitals, retail shopping centers, hotels.
Many consider residential housing to be the ideal exposure to the property market. This is typified by the investor purchasing residential property financed with a bank with a small deposit. A tenant is then obtained to rent it from which they ordinarily receive a monthly payments depending on the arrangement.
Why you are you been better off investing your money in a portfolio of listed properties?
Unlike physical property, shares are liquid instruments, meaning that they can be easily bought and sold. Being a property investor comes with its risks and as every investor in this market knows is that location is key to your investment. When an area becomes unsuitable to your tenants, it can take months to find the right buyer at the right price in order to liquidate your investment. Notwithstanding other potential risks such as changes in legislation relating to Rent escalations, possible damage to your property and loss of rental income either by non-paying tenants or rising interest rates that can’t be passed on to the tenant. A truly illiquid and complex investment with many variables.
In most cases those who truly benefit not accounting for luck are involved in the property industry such as developers, real estate agents and renovators. They pick up properties at bargain prices, have access to or provide inside information about certain developments that may cause areas or properties future values to surge.
For existing property investors, investing in listed property gives you the opportunity to diversify your property exposure away from residential property.
But what does this mean for the novice investor looking to enter the Property Market?
Forming a solid foundation for itself, listed property has illustrated consistent returns over the long term and in recent times has been one of the highest-returning asset classes over the past 5, 10-year periods. While there’s certainly no guarantee that this past performance the odds are in favour of listed property shares to appreciate in value. This is further supported by the predictability of income streams versus those of industrial, mining and financial companies.
Generally their tenants are quality companies with long term leases. Their rental income is more predictable and less affected by short term movements in economic trends. Building renovations, purchases of new buildings and development of existing properties all add to the capital value and thus rentals earnings can often grow at well above the inflation rate, thus providing the unit holder significant real returns.
Aside from that it’s cheaper and you don’t have to borrow. Better returns as yields don’t remain static compared to traditional investment in bonds and versus the broader equity market offers capacity as high yield and capital growth security and let’s not forget better tenants.
For investors requiring medium to long-term capital and income growth, with a recommended investment time horizon of 5 years and longer this would be the horse to bet on.
If anything this is a true diversified investment – diversified in local or offshore residential, commercial and developments on the high or low end.
Of course, before including any particular fund in your portfolio, it’s important to consult your financial adviser to ensure its suitability given your unique personal circumstances.
But given the strong case it makes for itself as an asset class, it’s definitely deserves consideration for inclusion in your medium- to long-term portfolio.
As the saying in the industry goes; rule number one is location, location, location the same holds true when choosing the right property fund.