Great returns on property investments are the topic of many exclusive dinner parties - listed property funds being a hassle free way to get a piece of the action. Provest Private Clients' Chris Hansen gives the outlook for 2005

LINDSAY WILLIAMS: Is 2005 another great year for property, coming up?

CHRIS HANSEN: I think so - Provest is quite bullish on the prospects for 2005. In the light of the interest rate environment that we are in at the moment - if we take a view that there is going to be a 1% cut in the interest rate - I think we can see total returns in excess of 20% in 2005.

LINDSAY WILLIAMS: Which sectors, though? As we have just been saying about the retail sector - we have got to be a little bit selective now, we can't just buy across the board. Are we, for example, going to come down in residential property? In retail property? Commercial property start coming to the fore again?

CHRIS HANSEN: We are only concentrating on the property unit trusts, and property loan stock sectors - that we collectively call the listed property sector. It is specifically focused on the commercial property market in South Africa - being the retail, industrial and office markets.

LINDSAY WILLIAMS: So which of those three would you go for? I know one fund that I spoke to recently is now 90% in retail, 10% in office - is that the sort of split you are looking at?

CHRIS HANSEN: I think that is quite aggressive in the retail sector. I think an overweight weighting in the retail is certainly favourable - given that we see it is still going to outperform the industrial and office markets - but a lot of the fund managers are pointing to a turnaround in the office sector, with continued strong performance from the industrial sector.

LINDSAY WILLIAMS: The industrial sector comes to mind because of what we saw today from the purchasing managers index (PMI) - reading above 50, as you know, means that the sector is expanding. But it is still only just above 50

- is that going to be the laggard, the industrial side, or is it due for a bounce back?

CHRIS HANSEN: We're quite positive on the supply and demand factors that are affecting the industrial sector. We are finding a lot of queries - and the brokers are coming to us with firm intentions to buy existing industrial land, because it is very difficult to zone industrial property from afresh.

Certainly, the supply and demand factors are playing into land owners'

hands.

LINDSAY WILLIAMS: What about office occupancy? We still see lots of To Let signs up around the northern suburbs of Johannesburg - has it got better over the last couple of years?

CHRIS HANSEN: It certainly has. A lot of it has been shifts from the Johannesburg CBD towards the outlying suburbs - but guys are saying it is pretty much 18 months away from the total take-up, given solid economic growth.

LINDSAY WILLIAMS: Geographically, any particular part of the country that has got to play catch-up?

CHRIS HANSEN: We are actually finding that the outlying, less popular CBDs have caught up already, and now we are looking at the northern suburbs of Johannesburg playing a little bit of a catch-up role now.

LINDSAY WILLIAMS: Down to the actual business of making money out of your observations - which particular funds are you going to concentrate on in 2005?

CHRIS HANSEN: Pretty much the funds that are showing above average earnings growth. We are projecting between 4% and 9% distribution growth over the course of 2005. We target the ones at the upper end of that scale - you are looking at your quality funds. You could point towards Sycom, Hyprop, Greyprop - shares like that, where they are well-tenanted, well-located properties, with a good strong solid track record in place.

LINDSAY WILLIAMS: In the industry itself - I mentioned deals that are being spoken about - Vukile, MICC - is there likely to be more consolidation in the industry?

CHRIS HANSEN: That is going to be a factor affecting the market in 2005 - along with the issue of securitisation. We are going to see the funds going to the bond market to raise finances, as opposed to the traditional banking route. That is going to open up a new spectrum of properties that the funds and companies will be able to purchase.

LINDSAY WILLIAMS: The bigger boys - the blue chips like Sycom and Hyprop you have already mentioned - they might be looking to snap up smaller competitors?

CHRIS HANSEN: Correct.