Brian Azizollahoff, who heads up the Property Loan Stock Association (PLSA) marketing committee and is CEO of Redefine Income Fund offers four good reasons why property specialists say investing in listed property is a sound, long-term investment choice. The PLSA is the representative umbrella body of the property loan stock sector of the JSE Limited comprised of voluntary members, with the weight of nearly all of the funds within the sector behind it. The PLSA both represents the sector and provides a resource for its member companies

•SA property fundamentals have stayed firm in the face of global downturn
SA property fundamentals have remained strong with the 2007 SAPOA/IPD South African Property Index showing a total return of 27.7% for commercial property for that year. A tightening supply of property is being faced by the market right now, and it’s being exacerbated by long town planning processes and the risks associated with of the provision of electrical supply for new project. This under-supply of available space should continue to drive good returns for existing portfolios.

•Consolidation continues to create large, diversified listed property funds
The listed property sector is experiencing a trend towards consolidation, resulting in fewer, larger funds with liquidity as a key attraction. Larger funds offer liquid exposure to the SA property market which appeals to both corporate and foreign investors in the current global environment. The sector may well see the emergence of smaller and more specialist funds in the medium- to long-term, as the global economic environment eases.

•Listed property still has good access to funding, a competitive edge
One of the advantages for listed property companies is that they have access to funding allowing them to continue to grow their portfolios. Some of the opportunities available to listed property companies are traditional bank finance, the issue of new shares and securitization. In the low interest rate environment, the preference was for “vanilla” mortgage backed finance and Commercial Mortgage Backed Finance as the issue of shares is a more expensive means of raising capital.  Securitization has virtually dried up since investor appetite for exotic products was quelled by the sub-prime crisis. Low gearing ratios of less than 50 percent of loan to value make listed property companies attractive borrowers for banks.

•SA listed property moving towards an internationally-recognized REIT structure
The listed property sector has been lobbying for a listed property structure called a Real Estate Investment Trust (REIT) that would be familiar to foreign investors and bring SA’s listed property structures in line with global property standards. A REIT structure in SA would give local listed property funds a “best of breed” combination of property loan stocks and property unit trusts, as well as a sharper competitive edge in the international investment arena. Discussions with National Treasury are ongoing and cover a broad range of relevant topics, including levels of ownership, debt funding, and a possible conversion tax for REITs.