Pension funds wakening to listed property investment opportunities

Posted On Tuesday, 09 May 2006 02:00 Published by
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Although property has always had an anchor role in a retirement investment portfolio, listed property instruments have not generally been regarded as core portfolio assets among South African retirement fund managers.

Although property has always had an anchor role in a retirement investment portfolio, listed property instruments have not generally been regarded as core portfolio assets among South African retirement fund managers. 

This is in sharp contrast to some of the international players where the market size and instrument liquidity have encouraged the adoption of significant listed property positions within retirement fund investment strategies.

Trevor Manual’s March budget cut the retirement funds’ tax rate on interest income from 18% to 9%.  Remembering that listed property distributions are taxed as interest in the hands of the retirement fund, this has a meaningful effect on the relative attractiveness of PUTs against general equities. Effectively, and all else being equal, this tax cut improved the after-tax income distribution of PUTs by some 11% (while the implications on equities were neutral), and added further fuel to the lobby for a re-look at listed property in the portfolio strategy.

James Templeton, marketing spokesperson of the Association of Property Unit Trusts, believes the local attitudes are changing, and retirement fund managers are starting to take notice of Property Unit Trusts (PUTs), which provide a liquid, high-performance and generally high-yield proxy to physical property investment.

“Over the past few years, PUTs have significantly out-performed other investment classes on a total return basis, and economic fundamentals suggest that PUT distributions will continue to show good growth over the medium term.

Added to this, is the fact that listed property investments, although equity instruments, fall outside of the equities portion of a retirement fund portfolio, restricted to 75% by prevailing retirement fund legislation.  This treatment effectively allows a retirement fund equity exposure of up to 90% of portfolio value, comprising 75% general equity and 15% listed property.

Imtiaz Ahmed of Investment Solutions believes the retirement funds are keenly aware of the value of listed property within their portfolios and that they see listed property as a superior proxy for cash and bonds.  It is only the relative size of the sector that prevents more aggressive listed property investment. “At around R60-billion, the South African listed property sector is only around 2% of the total equity market,” he says.

William Fraser, analyst at Foord Asset Managers, believes that despite the recent strong performance of listed property, relative to bonds and cash, the outlook for property remains strong.  “Given our view on distribution growth over the medium term,” he says, “we will maintain an overweight position for listed properties in our portfolios.”

Ends

For further information, please contact:

James Templeton
Association of Property Unit Trusts
Tel: (011) 775 1000

Monica Meyer / Sandra Mason
Ogilvy Public Relations Worldwide / South Africa
Tel: (011) 709 9609 

Date: 9 May 2006


Publisher: Association of Property Unit Trusts
Source: Association of Property Unit Trusts

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