By Ian Fife   

Sanlam has sold commercial properties estimated at R2,5bn (about a quarter of its total property investment) in the past year or so.

Yet the market is turning and there's a looming shortage of investment property. 

Properties sold include many of the perceived jewels in the Sanlam property crown - Golden Acre in Cape Town, Fourways Mall north of Johannesburg, Sanlam Centre in Randburg and Musgrave Centre in Durban. 

Most of the properties have been sold to private buyers, who are outbidding the listed funds in the rush to build sizeable portfolios. 

Corovest director Mike Aitken is one of the fund managers mystified by Sanlam's behaviour: "It could make tactical sense because many of those properties need life-cycle refurbishment.

So it can pass these problems on in a market of falling yields and get good prices. But it is hard to guess its strategy ." 

But Sanlam property chief Banus van der Walt says there is no mystery: "We have sold R5bn worth of noncore properties in the past five years since setting out our strategy publicly in 1998." 

Liquidity is at the heart of the matter.

Sanlam, along with Old Mutual, Liberty and other institutions, has had to change its investment strategies to suit the radically different demands of its customers - mainly pension and provident funds. 

"The customers were after long-term investments in the 1980s, when we couldn't invest offshore and inflation was 14%," says Van der Walt.

"So property was the perfect balance to our long-term liabilities, and we built property to 23% of our investments." 

That changed after 1994, he says, when international asset managers swept into SA.

"They brought a short-term mind-set, with performance measured quarterly instead of over years."

And defined-benefit pensions were rapidly giving way to defined-contribution provident funds.

"It was our customers who wanted us to reduce our property exposure," Van der Walt says. 

Research by property consultant Niki Vontas shows that institutions have been reducing property from a peak of 13% of their investments in 1985 to 3,29% now (see table).

In 1985 they owned 65% of the listed funds and 60% in 1995. Today they own 30%. 

Old Mutual has sold about R600m worth of properties in the time that Sanlam has sold the estimated R2,5bn. Liberty Properties has sold some stock but MD Roger Corlett says that was to buy new properties. Liberty will hold its portfolio at R10bn, ensuring a reducing proportion of total investments. 

Van der Walt says: "Our exposure in property is about 5% of total investment, but we have retained a core of R8bn in directly held property and another R2bn in listed shares." 

Old Mutual Properties chief investment officer Roland Chute backs Van der Walt's reasoning.

Institutions built their property holdings in an environment of prescribed assets and limitations on equity investment. "Investing in property was a great place to put the funds they had to deal with," says Chute.

"Today, property must stand on its own two feet and compete with the other asset classes." 

Vontas says some institutional fund managers argue that investments can be diversified for risk without having to be in property. "Institutional managers are increasingly under pressure to perform in the short term," he says, "but listed property can achieve that for them."  Despite being a seller, Van der Walt says: "It's a mistake to drop property from a portfolio. It's an important asset class and I continue to be allocated funds to buy new property."