Listed property - one of the most popular sectors among investors over the past few years - had a bumpy ride this week along with all the other asset classes when markets sold off around the world.

The listed property sector fell 5% from its peaks earlier this week but remains nearly 17% ahead in the year-to-date.

Len van Niekerk, joint portfolio manager of the Old Mutual SA Quoted Property fund, warns that investors in listed property should expect short-term volatility, but adds they can take comfort from the fact that property's solid fundamentals will still translate into attractive returns for the next few years.

The man in the street who invests in unit trusts poured R775.7-million into the sector during the first three months of 2006 alone after the sector delivered an impressive 61.34% return for the year to the end of March.

But Van Niekerk warns that investors must stop expecting the 40%-plus annual returns they have enjoyed since 2003; they can now expect a total return (before tax) of about 16% over the next 12 months - of which 7% is from income and 9% from expected capital growth.

Van Niekerk says growth in listed property companies has been strong this year and is likely to be sustained.

"We are seeing lower vacancies, rising rentals and improved cost controls. We expect economic growth to support even greater demand for space," he says.

Cheaper funding costs - thanks to the drop in interest rates - have been flowing through to the companies' bottom lines for the past few years, and Van Niekerk says this benefit will continue to feed through to property companies for the next two or even three years.

The real danger for listed property's fortunes is a blow-out in bond yields, but Van Niekerk says this is unlikely.

Evan Robins, head of fixed income at BoE Private Clients, says the sell-off in the listed property index this week is a good opportunity for those investors with long-term income needs to buy into property stocks.

Robins also believes that current holders of these stocks should not take fright, and recommends that investors in the sector sit tight despite the current volatility in the market.

However, for those interested in buying cheaper shares in listed property counters, "some investors may prefer to wait for confirmation that the selling pressure has abated before buying".

Robins adds: "Investors shouldn't buy listed property simply on the basis of possible capital gains.

"However, for those with a long-term view we suggest those who are underweight property use further weakness to pick up stock, as the distribution growth fundamentals for listed property companies remain very favourable." - Chris Needham

Business Times
 

Publisher: I-Net Bridge
Source: I-Net Bridge