'Property purchase better than listed property investment'.

Posted On Monday, 21 July 2003 02:00 Published by eProp Commercial Property News
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Despite warnings from many market commentators not to use past performance as a measure of future performance, it has become common practice for many investors to base their investment decisions on the performance of unit trusts.

Simon PearseOver the past quarterly, yearly and five-year periods. In the last three years or so, listed property as an asset class has really come into its own and this has created much hype in the market and naturally interest from investors. "We would like to temper this over-excitement at this stage and encourage investors to take an objective look at this asset class before investing in it," says Simon Pearse, managing director of The Income Specialists, a division of the Marriott Group. "In our view, the lack of rental growth would indicate that listed property is currently fully priced. Hence while an 11.5% income yield with prospects of 12 to 14% total return over the next five years is attractive to income-dependent investors in a low interest rate environment, these investors should be aware that they are paying a premium for this investment at the moment," said Pearse. "We believe that this asset class is currently expensive, having already built in the prospects for further interest rate cuts and a lower inflation environment into its current price.

Should further interest rate cuts not materialise, however, yields could move back up and investors would then be able to purchase a higher yield. There is no guarantee this will be the case, but then we didn't expect interest rates to move up steeply 18 months ago either." With listed property currently trading at a premium to Net Asset Value (NAV), investors could actually do better by purchasing physical property at the moment. Taking into account current weak property fundamentals, income for the year ahead is expected to grow at 0-1% and 2-3% over the following two years. Total returns over the next five years are expected to be approximately 12 to 14%. This forecast is based on a 12% income yield and an annual growth in income of between 2 and 3%. "South African listed property remains suitable for an income-dependent investor considering the anticipated lower inflation and interest rate environment. However, investors should be aware that South African listed property is now more expensive than equivalent open market 

Last modified on Monday, 12 May 2014 10:55

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