Industry commentators now say that the prospects for the sector compared with other investment asset classes are likely to remain sound.
Angelique de Rauville, MD of listed property portfolio management company Provest, part of the Investec Property Group, says in Provest's latest report on the listed property sector that the market's nervousness about increases in interest rates has abated.
"Most commentators anticipate a largely stable interest rate environment to the end of 2005.
"This provides for a suitable platform for capital growth as earnings growth translates into share price appreciation," De Rauville says.
She says that with growth in distributable earnings expected from the listed property sector, Provest is encouraging investors to be "overweight in listed property as an alternative to cash and bonds".
It is expected that demand for property stock will rise, she says.
Already there is evidence of renewed interest in listed property from pension and provident funds, De Rauville notes.
"Many of the pension and provident funds are currently reassessing asset allocations and part of this reassessment in most cases is an increased exposure to property, particularly as it relates to the listed property sector," says De Rauville .
Historically, listed property has been a neglected asset class withan insignificant market capitalisation and illiquidity.
However, De Rauville says that in the past five years there has beena significant increase in market capitalisation and tradeability of listed property units.
Colin Young, fund manager of Old Mutual's SA-listed property funds whichinclude the Old Mutual SA Quoted Property unit trust believes the interest of pension and provident fund managers in the sector is a "calculated decision".
Young says the sector has improved corporate governance and liquidity,and this has helped attract new investors.
He believes that if SA remains in a low-inflation environment with asteady rand, the chances are good that bond yields will respond and fall,as their prices will go up.
In such a scenario Young says listed property, the performance of whichtends to follow that of bonds because they are both income-generating investments,will follow suit and likewise benefit from the low-inflation environment.
Taking a short-term view, Young recommends investors should remain overweight in property relative to other fixedinterest rate products.
He says that despite concern about interest rates rising in the short term, a lot of listed property funds and companies have already fixed a large portion of their debt. Consequently, he believes, they will be resilientto potential increases in interest rates.
"Over a three-year view I believe the potential exists for SA to reacha 3% structurally low inflation environment. If this were to occur it would be very positive for bonds and listed property," Young says.
There is one significant risk to the low-inflation scenario, and thatis if the world's developed economies raise their interest rates sharplyover this period.
John Rainier , chairman of the Association of Property Unit Trusts,says that in the past people were nervous about investing in property.
However, Ranier says there was a tendency to forget that property, unlike other asset classes, shows much of the total return in the income yields of listed property funds.
In a recent Investment Property Databank SA survey in which most listed property funds participated net income growth on nonresidential property was about 8% last year.
