Critical indicators in the listed sector

Posted On Thursday, 09 October 2003 02:00 Published by eProp Commercial Property News
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The impressive levels of growth in the listed property sector have fuelled a belief that listed property is more accessible, more liquid and more easily traded than direct property.

Angelique de RauvilleMany analysts take the view that the listed sector is driven primarily by the bond rate and the performance of the JSE Securities Exchange SA (JSE) in general, with only an underlying connection to the direct property sector.

But Provest Asset Management MD Angelique de Rauville believes the sectors are intricately intertwined.

There is such a high level of correlation between the listed and direct property markets that almost all factors influencing the performance of one affect the other, she says.

De Rauville says that her company is considering conducting formal research into the relationship between direct property returns and listed property returns.

There are critical indicators for investors to monitor in the listed sector. As a starting point, potential investors need to examine carefully the net asset value of individual funds to understand the current assets and the potential future value of the underlying properties, she says.

"Another critical aspect is the geographical and sectoral spread, not only because it determines a fund's match to investor requirements, but also because it focuses on the physical property trends that will drive the fund."

Other crucial considerations relating to the physical properties include management integrity, achieved rental income within the portfolio, lease expiry profiles and the tradeability of shares and individual investment properties.

She says financial indicators that investors should monitor include, among others, gearing levels, projected earnings and earnings growth as well as the diversification of the portfolio.

"Factors affecting the listed property sector five years ago are no longer as influential as they were. Close analysis of the trends and their subtle shifts can add huge value," says De Rauville.

Meanwhile, when SA's first residential property income fund reaches the JSE in the near future, the market capitalisation of the listed property sector will have more than quadrupled from R4,5bn in 1998 to more than R20bn.

The new fund, Habitat Property Investments, will have an initial portfolio worth about R400m, says Harry Boonzaaier, director of Catalyst Property Asset Managers, the fund managers.

He says Habitat plugs a gap since residential property plays no part in the SA listed property sector. By contrast it makes up 26% of all listed property in the US and 10% in Europe.

Boonzaaier says a report by Investec Securities covering the period from 1981 to 2002 shows that an 18,5% total return was achieved by houses.

This compares with returns of 16,2% for JSE-listed equities and 14% for bonds and cash over the same period.

Boonzaaier says the Investec report also shows that even over a shorter period from 1994 to 2002 houses delivered the best return.

This was 18,2%, ahead of equities at 13,1%, bonds at 15,9%, cash at 13% and property loan stock companies at 14,9%, he says.

 

 

Last modified on Friday, 09 May 2014 16:30

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