The latest SAPOA/IPD South Africa Property Index released this month revealed an extremely robust direct property market, with total returns from direct property amounting to 30.1% for 2005. Direct property delivered income returns of 10,3% and capital growth of 18,1%, while PUTs achieved 7.8% income returns and capital growth of 29.7%.

“PUTs have consistently outperformed the average of the commercial property sector over long term periods,” says James Templeton, spokesperson for the Association of Property Unit Trusts (APUT).

Over a three year period PUTs provided investors with a compound annual return of 33.7% compared to the sector average of 22,8%. Over a five year period PUTs showed a 21.9% return compared to the sector average of 17,5% and over an 11 year period PUTs experienced a compound annual return of 15.0% compared to 14,8% for the sector.

Templeton says that much of this outperformance can be attributed to the fact that for many years PUTs and other listed property vehicles were trading at discounts to their net asset value (NAV). As the market has re-rated as a result of the falling interest rates, PUTs now trade at a premium to unlisted property, indicating that listed property is now being taken more seriously as an asset class.

Templeton says that property in general has come back into favour as a result of the exceptional performance from the asset class, as represented by the SAPOA/IPD results, but listed property has also regained its favoured status as people have realised the benefits of investing in a listed entity as opposed to a direct unlisted holding in a property. This also reinforces the reason why listed property should be a part of any well-diversified investment portfolio.

Unlisted property is far less sensitive to interest rate cuts and it takes a considerable length of time before the changing economic conditions impact on the value of the property.

However listed property is more sensitive to interest rate moves and tends to move in tandem with bond yields and has therefore provided superior capital returns over the last few years.

Templeton says PUTs are an ideal vehicle for people to access commercial property investments as they are far more liquid than unlisted property and offer the investor the opportunity to move in and out of the sector according to the economic cycle, at a significantly lower cost.

Should an investor purchase a commercial building, they would be exposed to a single or, at most, a handful of tenants, with the administrative hassle of managing the building. PUTs, on the other hand, own portfolios containing hundreds of tenants managed by professionals, significantly reducing the risk and workload to an investor.

The actual value of the investment is priced daily and therefore more transparent, providing the investor with a constant update on the value of his or her investment. In the case of unlisted property one would have to find a buyer for the property before you could realise your investment.