THE local commercial fixed property and listed property sectors are not benefiting from the inflows of foreign direct investment to SA, says Angelique de Rauville, MD of Investec Listed Property Investments.

De Rauville said on Friday that the commercial property industry would have to educate foreign investors about SA’s economy and investment opportunities to start drawing foreign investment. Commercial property includes offices, industrial and retail properties. De Rauville was addressing delegates at the fourth annual property investment conference hosted by commercial property association Sapoa and Investment Property Databank at the Cape Town International Convention Centre. After her talk she said foreign direct investment was focused on natural resources and fixedincome investments currently.

The residential property sector benefited from some foreign investment, and “massive returns and low yields on residential property” was “in part due to this foreign interest”. From about 2001 onwards, residential property in SA experienced boom conditions with year-on-year price growth peaking at more than 35% near the end of 2004.

“To achieve foreign investments into commercial real estate, listed and unlisted, we need to educate foreign investors on the South African economy and the investment opportunities that exist here. The listed property sector (also) has to grow substantially its market capitalisation beyond its current level of R68bn,” she said.

De Rauville said the introduction of a real-estate investment trust (Reit) system in SA would make the listed property sector more attractive. The listed property sector consists of property unit trusts and property loan stock companies. Property pundits say these local structures are alien to global fund managers and other investors who could invest in the country’s listed property sector.

The Property Loan Stock Association, which represents 25 South African-listed property loan-stock companies, is one of the most vocal proponents of the introduction of a Reit structure. The leading Reit market is the US, with a $478bn market capitalisation and 159 listed Reits. Listed property companies in Europe have also adopted the structure and the UK is set to introduce it next year.

One advantage of Reits is tax efficiency. The property company passes earnings directly to unitholders without paying corporate or capital gains tax. Unitholders pay tax on gains. There is consensus in the listed property market that SA should consider adopting the globally recognised Reit structure to woo foreign investors. De Rauville said South African listed property companies and other property players would have to go on investment road shows to garner interest.

She said there was a construction boom in SA, and Finance Minister Trevor Manuel’s minibudget, which was announced last Wednesday, confirmed massive infrastructure spend.

De Rauville said this was positive for SA and would help the country become a preferred investment destination, as well as create jobs and fuel the economy.