Listed property trumps long bonds

Posted On Wednesday, 14 December 2005 02:00 Published by eProp Commercial Property News
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Listed property trumps long bonds.

Angelique de RauvilleAlthough, historically, listed property tends to trade at a discount to government long bonds because of the higher risk associated with property, it has traded at a slight premium in recent months.

This is an indication that the market believes there is sufficient earnings growth from the listed sector to offset risk associated with property investments.

Listed property yields tend to track the performance of long bonds, as they are long-term income-generating investments.

Catalyst Fund Managers MD Andre Stadler says one of the benefits offered by listed property, and property in general, is that property is a real asset and its income stream has the ability to grow, as opposed to bonds.

Listed property does not have a limited life while a bond has a maturation period. “The income stream from property will continue as long as there is property to rent out,” says Stadler.

He says that the property market at this stage is characterised by strong fundamentals, with a reducing supply of rental accommodation and increasing costs of creating newer supply.

“As a result, you’re seeing income growth. In addition, property companies are realising savings on debt funding costs because of lower interest rates.”

Another factor strengthening the listed property sector is that of debt-securitisation initiatives. Stadler says it lowers debt-funding costs further. These factors, taken together, drive income growth.

“As a result, it’s justifiable for property to trade at a yield, on par or below bond yields,” he says.

Previously, property traded at higher yields to bonds as it was seen as riskier and expectations for income growth were lower.

Stadler says Catalyst’s view on a long-term basis is that listed property is well priced.

Investec Listed Property Investments MD Angelique de Rauville says the key motivation for listed property trading at a premium to long bonds is the earnings growth from the sector.

Her company is forecasting earnings growth of about 8% on a 12-month forward yield.

Another motivation for investing in property is the capital appreciation that can be achieved. “Listed property is expected to exceed the performance of long bonds,” she says.

Stanlib Asset Management head of property funds Mariette Warner says relative to bonds, listed property is attractive. “If you look at a historic yield basis, property appears to be trading at a small premium to bonds.”

“When you buy units in listed property, you’re buying the value of the (property) portfolio plus accumulated income as rentals are collected monthly and distributions to unitholders are quarterly or every six months.”


“If earnings are growing, the risk is lower. When earnings turn negative, the risk is higher,” Warner says.

Last modified on Thursday, 08 May 2014 19:41

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