Complemented with sound investment fundamentals, the sector is set for a revolution that could deliver what property investors have for many years been hoping for, namely liquidity and critical mass in property as an asset class. This could bring back the interest of institutional investors who have ignored property in favour of other assets.
Rode CEO Erwin Rode concurs, and draws attention to the curious similiarity between long-bond yields and listed property investment: 'The income stream from a property is more risky than that of a long bond, but when it comes to the growth prospects for income in a time of low inflation, the two are nevertheless very similar,' he says.
In expectation of much lower inflation, investors on the JSE have acknowledged this similarity, in the sense that income yields of listed property have religiously followed the income yields of long bonds downwards since 1998.
'That explains why listed property has done so exceptionally well on the JSE in the past three years. And, if inflation drops to below 5% and stays there, there is more scope for long-bond yields to drop even further. In tandem, listed properties' income yields will also drop, resulting in capital growth.'
RMB Properties CEO Bryan Jackson said to Business Day that the existing listed sector should focus more on quality portfolios which will drive down yields to bring the gap between direct and listed yields to a level where the risk of converting to listing becomes acceptable.
In relative terms the sector remains illiquid and Jackson says this fact diminishes the attractiveness of listing.
'Most investors in the sector are net acquirers who buy in and stay. They cannot get out at will and some fear gettin out because it might be difficult to return when they wish to.'
But, says Rode, it follows then that it is still a good time to buy listed commercial property, although three years ago would have been better. 'Why fund managers all began dumping property in 1996, much like lemmings, remains one of the mysteries of the investment industry of the late 20th century. Surely one does not sell an asset when it reaches the bottom of its cycle? That's the time to buy!'