Developing trends are signifying an increasingly attractive environment for SA listed property, according to Albert Arntz, manager of the Prudential Enhanced SA Property Tracker Fund.
Arntz said that over the past year, significant investment inflows have gone into local real estate unit trusts.
Statistics from ASISA show net inflows of 4.6 billion rand into local real estate unit trusts for the year ended March. The inflows into local real estate unit trusts have coincided with an increase in foreign ownership in certain listed property stocks.
Arntz said that aggressive pricing of recent fund listings also suggests significant institutional demand for new listed property stocks.
He said the appeal of listed property is reflected in the growth of Prudential's property fund. The fund recently exceeded 1.3 billion rand in value, with net inflows of more than 800 million rand over the past year.
"The investment case rests on the balance between the valuation of property, the investment risks and investment benefits. These benefits include investment diversification, a relatively high income yield and listed property's defensive qualities. Its valuation essentially represents the price one pays for the future income stream from property."
Arntz mentioned that SA Listed Property may be considered one of the more defensive sectors of the broader equity market in terms of investment benefits.
"This is borne out by the low beta of the SA Listed Property index relative to the FTSE/JSE All Share index. By our estimates the beta of property is well below one. In this context, beta suggests that a decline in the All Share index has historically been met by a significantly lower decline in the property index.
"The low beta may be partly attributable to the contractual nature of rental income. Lease agreements predetermine the bulk of income for property funds, providing arguably more predictable income streams than typical industrial, mining or financial companies." he said.
"Investors in local listed property should receive an income yield close to 8.5% over the coming year. This far exceeds the yield in money market funds of around 5.5%," Arntz explained.
"Besides a higher income yield, property investors stand to benefit from long-term growth in income, which is not the case for investors in cash or fixed income securities. In addition, the high income yield on property when compared with the broader equity market (of around 3%) adds to the defensive qualities of the sector."
Source: I-Net Bridge
Publisher: I-Net Bridge
Source: I-Net Bridge
