By Reggie Tachie-Menson

Listed property funds continue to blaze a trail on the markets, with the overall JSE index failing to match up to the heady performances being achieved. Will it last? Developers and property analysts believe so, predicting low vacancy rates and 8.4% yields going forward.

Investors are fast realising that higher yields than cash and bonds are on the cards in this sector over the next 12 months, while as a separate asset class it offers diversification and the benefit of a regular income stream.

Commercial property has much to offer despite the slow economy.

Brent Wiltshire, property development executive at Old Mutual Investment Group Property Investments (Omigpi) says commercial property has legs. "We think it is a good time to build."

He says that bigger companies are showing a bit more demand for office space.

Keillen Ndlovu co-head of the STANLIB Property Franchise - the top performing real estate fund over three years at 34.85% - is looking at income from property to grow by 6.5% over the next year, which beats inflation at 3.7%.

The income growth (of 6.5%) results in a forward yield of 8.4% - ahead of cash at 6.5% and bonds at 8%.

The SA listed property sector has 18 counters. Some have diversified portfolios (industrial, office and retail). Some are specialist retail - e.g. Hyprop Investments.

Some even have some residential buildings (Premium and Octodec). Some have exposure to other property counters (local and offshore). Management is different, so is the quality of the buildings, tenant profile, debt profile, sectoral exposure, lease expiry profile and vacancy levels.

Ndlovu says investors should be aware that portfolio managers have different styles and research processes. The asset allocation differs as well.

Other managers keep full property exposure at all times. Others take bets on the market (or time the market) by increasing or decreasing cash exposure.

"For example, over the last 5 years the difference between the best and worst performing property unit trust has been about 8% (annualised). Even the short-term numbers support this - the difference over one year has been about 14%," says Ndlovu.

But should people also be looking at local and offshore property funds?

Ndlovu says they should, for diversification purposes.

"Offshore property funds offer currency diversification. They also have some specialist sectors that we don't have in the SA listed property index - like prisons, storage, hospitals, service stations and residential apartments.

"Offshore companies are offering an average forward yield of 4.7% in dollars. This yield is well ahead of bonds and cash - cash is yielding virtually nothing. Bonds are on yielding below 3% on average."

Evan Jankelowitz, co-head of the Stanlib Property Franchise, favours property for the medium to long term as it will beat inflation and other asset classes like fixed income.

At this point, he prefers retail - like the bigger shopping centres - as these types of tenants have been less likely to move, in comparison to office tenants. He cautions that the cost of tenancy could be an issue for smaller tenants.

The real estate and services index bears out the good times for investors in property, with a growth rate so far this year of 17%, well ahead of the JSE at 5.4%.

Based on the views of analysts and developers, it certainly seems like the good times could keep rolling. Wiltshire predicts that vacancy rates the after effects of the recession - will decrease by the middle of 2012.

Source: I-Net Bridge