Listed property withstands darker times: Stanlib's Ndlovu

Posted On Monday, 17 October 2011 02:00 Published by
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From an income perspective, property in the long term will outperform bonds and cash, according to Keillen Ndlovu, head of property funds at Stanlib.

By Reginald Tachie-Menson

From an income perspective, property in the long term will outperform bonds and cash, according to Keillen Ndlovu, head of property funds at Stanlib, which constructs a solid case for a long term investment solution in the midst of a volatile and uncertain investment environment.

With the uncertainty surrounding the developed world's economic health and the subsequent consequences that may arise for the rest of the globe should the worst be realised, the stock market has proved to be a risky place of business.

However, Ndlovu pleads the case of listed property as an especially attractive asset class in the midst of a new and continually uncertain time.

Ndlovu said that property had been far less volatile than equities. Equities had just been "all over the place". "So I would tell investors that property is a separate asset class, it behaves differently from everything else.

"We saw that in July/August with the US downgrade and global markets volatility. Equity was down over 12% at some point, property was only down 2%."

"There's a space for property in every balanced portfolio. It's got a low correlation to equities"

Ndlovu said: "What is often missed in property is the income element that people tend not to factor in against the equity space. They think property is outperformed and is actually looking expensive. It's actually not."

He explained that if property prices now were looked at, one would find that the prices are still at the same level as November 2007. "Property has done five times more than equities since November 2007 to date. But that's in income, share prices haven't really moved."

"It's all relative, 'cause if you look at year-to-date total returns from property, it's around 6%, bonds have done 7%, equities have done 8%, cash is about 4.5%."

Ndlovu said that the perception of property being expensive was unwarranted. "Just look at the nominal numbers."

"Right now forward yield for the sector is 8.3% for year one, ten-year bonds are trading at 8%. If you're looking at cash you'll be lucky to get 5.5%. From an income perspective, property scores better than bonds and cash.

"Cash and bonds that yield don't grow, whereas property is 8.3% and you're making over 5.5%-6% growth in the long term. Every year that income keeps growing.

In a situation in which economic conditions were to deteriorate, Ndlovu said that defensive assets would be a good place for investor's to position themselves and property was more defensive than equities.

"You would want to have property exposure. Bonds probably coming first, that's why you find that in the US, everyone's flying to bonds and flying to quality. Property comes next because if you look at the sector, 80% of your leases are actually locked in for 3-4years. SO the risk lies in the 20% that comes up for renewal, but then 80% escalated 7%-8% a year, it provides the underpin."

Source: I-Net Bridge

Publisher: I-Net Bridge
Source: I-Net Bridge
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