Offshore property offers top value

Posted On Saturday, 29 September 2001 03:01 Published by eProp Commercial Property News
Rate this item
(0 votes)

GIVEN the poor performance of equity markets worldwide, many SA investors with money offshore are now questioning the wisdom of their overexposure to this asset class.

Simon PearseSimon Pearse, MD of Marriott Asset Management, says there is no better time for South Africans to diversify into international real estate.
'Global equities are being punished as the US economy slows and the equity, bond and cash investments that investors traditionally use to diversify their offshore investments are not yielding the returns they expect.
'By contrast, the income yield for international real estate is at 6%, which exceeds the yields on bonds and cash.'
Pearse says unlike bonds or other interest-bearing investments, international real estate offers investors a growing income due to rental escalation from the underlying properties. As rental agreements include escalation clauses that ensure rental returns keep up with inflation, this growth is inflation-hedged.
However, growth of 5% to 7% is forecast for listed property for the next two years, which is around twice that of international inflation at 2,6%, making it even more attractive proposition.
'US real estate is offering exceptional value relative to US equities. This is evident in the fact that the US real estate price to earnings ratio (p:e) relative to the S&P 500 p:e ratio is at a 35% discount to the 14-year average.'
International real estate is where local real estate was three years ago when listed property enjoyed high yields and good income growth based on escalating rentals, he says.
Listed real estate experiences cycles during which the listed company value trades at a premium or a discount to the net asset value (NAV) of the underlying properties.
'The real estate sector in the US is trading at a discount to NAV of around 10% when historically, it has traded at a premium of about 5% to the value of the underlying property,' says Pearse.
'What this means is that one can expect fortuitous capital gain over and above the capital growth that is enjoyed as a result of income growth.'
While an offshore investment offers South Africans currency diversification, a listed real Pearse says one way to assess the risk is to look at how closely the asset class correlates to other asset classes. For real estate, it correlates poorly to equities and bonds.
When equities are doing badly, real estate performs well. For quite some time now, real estate has been negatively correlated to the Nasdaq.
'Thus, SA investors should consider international real estate as an option for their offshore investments,' Pearse says

Last modified on Thursday, 24 April 2014 17:24

Most Popular

Lockdown impacts buying trends of generations of home buyers

Nov 15, 2020
The Covid-19 pandemic and lockdown has been a catalyst for highlighting the different…

Residential property market gathering momentum, says Eazi Real Estate

Nov 18, 2020
In this last quarter concluding in December 2020, the residential property market…

Second-hand shopping is being revolutionised and expanding the circular economy

Nov 18, 2020
EPP CEO_Tomasz Trzoslo
Conscious consumers are championing the resale of goods to reduce waste and extend the…

It’s all about creating confidence and positive sentiment in our economy, says Dr Andrew Golding

Oct 28, 2020
The Minister of Finance hit the nail on the head when he said that it is not only…

Pam Golding Properties awarded Best Real Estate Agency in South Africa in International Property Awards

Nov 18, 2020
IPA Awards Pam Golding Properties 2020 - 2021
Competing against real estate companies from around the country, this is the 14th year…

Please publish modules in offcanvas position.