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Yields on listed property top residential - BoE

Posted On Monday, 13 September 2004 02:00 Published by eProp Commercial Property News
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Listed property is a better investment than residential property because as investors can earn double the yields without administrative hassles, says a BoE Private Clients analyst.

Colin YoungResidential property yields were about 4% or lower in parts of Cape Town and Johannesburg, and up to 6% to 7% generally in suburban areas, while listed property should give investors an annualised yield of at least 11,5%, Evan Robins, fixed-income and property analyst, said at a BoE Private Clients Property discussion in Cape Town recently.

"With listed property unlike owning residential property as an investment you do not suffer from having an illiquid high-maintenance asset with very high entry-level costs, large transaction costs on both legs, rates and taxes, maintenance spending and high idiosyncratic risks," he said.

Robins said that if viewed as a financial asset a house was only worth the future rents an owner could earn from it, and that the only investment argument to make for residential property was if one expected rents to increase by a large enough rate to account for the low yields being earned currently.

Colin Young, fund manager of Old Mutual's South African-listed property funds, said a residential property investment brought with it certain transaction costs such as managing the tenant and paying rates.

Such an investment also lacked a liquid investment structure, like a share in the residential property market.

Young said the administrative costs when buying into the residential property market were higher than the management fee paid to a unit trust or a broker to manage an investment in a listed property fund. Listed property stocks also offered a steady income stream to investors, he said.

"When you buy a residential property you are not buying it for income. The main objective is capital growth. You try and buy in the right areas which will be popular. You are taking more of a risk than in listed property."

Mariette Warner, fund manager of Stanlib Property Income Fund, predicted there would be more interest from investors in listed property .

However, Warner said, investors should be aware there would be capital fluctuations, depending on the interestrate cycle.



Last modified on Monday, 12 May 2014 18:13

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