By Chris Needham

For the past two or three years, listed property - including shopping malls and industrial space - has been a fantastic place for investors' money, delivering returns that have often outpaced the rest of the local equity market.

But the sector, made up of Property Unit Trusts and Property Loan Stocks, has fallen in the past few weeks, and opinion is divided on whether this is bad news or more of a buying opportunity.

Stanlib, the unit trust company, announced recently that it had reduced its exposure to listed property to protect the gains made in recent years.

"At this stage we view the pullback as an overdue correction in the big bull market that has been under way for the past five years," Paul Hansen, director of retail investing at Stanlib, wrote in the Stanlib Weekly Focus.

"There is no reason to believe that the major uptrend is over because of the very strong fundamentals of declining vacancy rates and rising rentals that still exist," he wrote.

"Hopefully inflation and interest rates will be peaking soon at what will still be very reasonable levels."

The Association of Property Unit Trusts said that if this month's 50 basis point rise in interest rates caused a pullback in listed property prices - which it does seem to have done - it would represent a buying opportunity.

Len van Niekerk, head of quoted property at Old Mutual Investment Group SA (Omigsa), reminded investors in listed property to be patient because it is an income-providing asset class.

"Listed property is a longer-term asset class and patient investors will benefit from sustainable growth in distributions over the next several years - which will translate into capital gains over time," he said.

The sector can experience large moves in prices, meaning that returns can be very erratic in the short-term - and that this could scare "some investors into making rash sell decisions", he added.

However, he said, "the income streams are very secure and growing, hence the need for investors to take a longer-term view".

Van Niekerk said that the greatest risk to the property sector was a sustained rise in bond yields.

"This risk would be intensified if materially higher inflation expectations manifested for an extended period."

However, if the bond market overreacted, this could provide a buying opportunity, Van Niekerk said.

"The property sector continues to show strong distribution growth (in the region of 12% a year) underpinned by supply and demand dynamics that increasingly favour landlords.

"Strong economic growth has underpinned the demand for space, while rising building costs and increasingly limited supply of zoned serviced land are supporting higher rentals across retail, office and industrial properties."

Business Times