'Strong income growth will attract investors'

Posted On Tuesday, 04 May 2004 02:00 Published by eProp Commercial Property News
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Property Unit Trusts (PUTs) returned 39.1 percent over 2003, outstripping the performance of the JSE Security Exchange's All Share index (Alsi), long bonds and direct property investments, John Rainier, the chairperson of the Association of Property Unit Trusts, says.

 

Property-Housing-ResidentialRainier says this exceptional performance was made up of a 12.8 percent return from income and a 26.3 percent growth in capital. Over last year, the Alsi returned 15.7 percent, long bonds returned 25.1 percent, and direct property returned 15.1 percent.

Rainier says the performance of PUTs over three and five years was equally strong. PUTs delivered a total annualised return of 21.8 percent over three years against the Alsi's 11.7 percent, long bonds' 23 percent and direct property's 11.8 percent.

Over five years, PUTs delivered 27.9 percent a year, the Alsi 18.5 percent a year, long bonds 24.6 percent a year and direct property 12 percent a year.

Looking forward, Rainier says positive fundamentals in the property sector, as well as the attractive income from property relative to other income-generating investments will continue to attract investors. As more investors invest in PUTs to derive an income, so capital growth in the value of the units will take place, he says.

Investors with no or low incomes (and who therefore pay little tax) can earn three percent more from PUTs than they can from investing cash in a bank or money market account for every R100 000 invested, he says.

Income growth from PUTs has been consistent since the mid-1970s. While unit prices have fluctuated, mainly because of movements in the bond market and interest rates, income from PUTs has grown steadily, generating yields that have consistently out-performed the Alsi, bonds and cash, Rainier says.

Rainier says that while historically PUT yields have tracked the yields from long bonds, the market has never before experienced a combination of a strong currency, low inflation and low interest rates.

Long bonds are the measure of long-term interest rates, which affect the return that investors require from all other investments.

He says there is clear evidence of a potential for growth in the listed property sector.

In the past 18 months, pension funds have, on average, increased their asset allocations in property from one percent to three percent, Rainier says. Research by asset manager Cadiz suggests that an optimal property allocation for pension funds is between six and 13 percent.

Last modified on Friday, 09 May 2014 16:44

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