It's a good policy to be invested in property.

Posted On Tuesday, 13 May 2003 02:00 Published by
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The last article in the series on property as an investment examines the extent to which property is included in investment products sold by life assurers. When you invest in a retirement annuity, a preservation fund, a living annuity or an endowment, you can get exposure to property.
The last article in the series on property as an investment examines the
extent to which property is included in investment products sold by life
assurers. When you invest in a retirement annuity, a preservation fund, a
living annuity or an endowment, you can get exposure to property.

The poor performance of equities has turned the attention of investors to
other assets and property is getting renewed attention, Rowland Chute, the
executive director of Old Mutual Properties, says.

It is important to include property in a portfolio for the sake of
diversification and because property has different characteristics to other
asset classes. For instance, property tends to provide more capital
stability and higher income than, for instance, equities, Chute says.

Whether life assurers will invest a greater proportion of their assets in
property depends on their existing portfolios and investment outlook. If
there is no exposure to property or exposure has been very low, investors
may well consider increasing their investments in property, Chute says.

Stuart Wenman, the divisional director of product development and marketing
at Liberty, agrees that property is regarded as an attractive asset class at
present. A concern however is that investors are moving to property-based
investments purely because of the relatively good returns that these have
achieved over the past few years relative to equities.

When equities start to deliver attractive returns again, many of these
investors switch to equities to maximise
their returns. History shows that investing in last year's best performer is
a poor strategy, and Wenman cautions investors against doing this.

The key for investors is to align their investment strategy with their risk
profile. You should understand the likely short-term volatility and the
longer-term expected return from the various asset classes, and then
construct an investment strategy that is aligned with your tolerance for
short-term volatility and your longer-term investment goals.

Wenman says that historically 10 to 15 percent of Liberty's managed
portfolios have been invested in property although this percentage is
adjusted from time to time, based on the view of its asset managers.
Currently the managed portfolio has nine percent in property, the
conservative fund has just over 10 percent in property, the moderately
conservative fund just over 15 percent and the moderate fund has slightly
more than 10 percent.

The Liberty property portfolio includes a number of high-profile properties
such the Eastgate Shopping Centre, the Sandton City Shopping Centre in
Johannesburg and the Sandton Convention Centre in Johannesburg. The returns
from Liberty's property portfolio, Wenman says, have been relatively stable
from year to year due to the large rental component, and the returns from
this portfolio over the past 10 years have comfortably beaten inflation.

Over the past 10 years to the end of 2002, the Liberty property portfolio
has delivered a return of about 11.5 percent a year after tax and charges,
while over the past five years, the return has been in the region of 11
percent a year.

While property is an important element of managed portfolios, it is also
available through Liberty as a pure property portfolio. This means that you
can choose the percentage of your investments that you want to invest in
their property portfolio. You also have the choice of an underlying capital
guarantee should you want it for peace of mind.

Investing in property via an endowment has several advantages for investors,
including:


You get a well-diversified property portfolio because the insurance company
pools the funds of a large number of investors which enables it to buy into
more than one property and more than one property type;

The properties are managed by professionals;

The rental component of property is taxed at 30 percent in the hands of the
assurer. If you own property directly, and are at the top marginal tax rate,
you will pay tax on rentals that you receive at 40 percent.

Your investment is relatively liquid because you do not have to wait for the
properties to be sold in order to get your money.

Wenman says many investors also use the Liberty property portfolio for all
or part of their living anuity investments. This is because of the
historically low volatility of monthly returns under this portfolio which is
ideal when you are drawing an income. There is also no income tax payable in
your hands on the rental component of the return under these investment
vehicles which is of further benefit to the investor, he says.

Publisher: Personal Finance
Source: Charlene Clayton

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