Old Mutual Investment Group Property Investments (OMIGPI) is making a bold move into India, with plans to build 10 shopping malls, together with an Indian partner, over the next four years. These will be similar in scale to OMIGPI's Gateway at Umhlanga (KwaZulu-Natal) and Menlyn Park (Pretoria). The malls will be housed in a US$500m (R3,450bn) development fund - Triangle Indian Fund - that OMIGPI plans to launch in January 2008.

Listed property funds are following suit. Sycom recently announced a R257,5m investment in the Stenham European Centre Fund, an offshore property fund listed on the Channel Islands Stock Exchange. The fund holds as its only asset a regional shopping centre located between Leipzig and Halle in Germany. Capital Property Fund (in the Resilient group) recently invested offshore through a Resilient group listing initiative on the AIM market in London called the New European Property Investment. SA Corporate has also begun looking at investing offshore. SA Corporate CEO Craig Ewin says it's at the exploratory phase, looking at various opportunities to grow the fund's assets overseas. Ewin says SA Corp is interested in both direct investments in physical property and investing in offshore listed vehicles.

The question is: what's prompted the move offshore? Craig Hallowes, spokesman for the Association of Property Unit Trusts, says SA's property market has seen four years of exceptionally good growth. But as the performance levels start to taper off property funds are looking at offshore markets with a view to both diversifying their holdings and adding to returns. Says Hallowes: "The appetite for foreign property has risen as quality SA stock become scarcer. We're experiencing liquidity constraints in the SA market. It's a supply side problem. There are delays in obtaining land zoned for development and we currently have a very tight building and construction environment. That's leading to a shortage of quality developments." Another factor that is motivating PUTs in particular to invest offshore is the restriction on investing in SA listed property.

Hallowes says PUTs may buy offshore listed and direct property, but can only invest in direct property in SA. "Offshore listed property yields are similar to those in SA - at around 6,5% to 8%. But you're buying into high quality office blocks in European centres at those same yields. It makes sense for PUTs to diversify in a way that results in very little yield dilution while getting the benefits of geographic and currency diversification."

Hallowes says PUTs are mostly looking to Europe and the US as destinations for their external capital rather than countries closer to home, such as other countries in Africa. That's because the Collective Investment Schemes Control Act, with which the PUTs must comply, restricts offshore investment to those countries that have an investment grade sovereign credit rating. Few countries in Africa have such a credit rating, which obviously makes investing more difficult for the PUTs. Michael Levin, a senior investment manager at Cannon Asset Managers, says historically exchange controls and a weak rand hampered SA property funds.

In addition, SA has had an extremely buoyant local property market so there hasn't been the same need for listed funds to look to alternative property markets. Says Levin: "With SA still in a rising interest rate environment - contrary to the US, where Fed Chairman Ben Bernanke has recently cut interest rates - the outlook for property returns is more muted. So it makes sense to undertake some geographic diversification at this point in the cycle."

Latest figures released by British-based research company Investment Property Databank (IPD) show the top performing property markets in the world (other than SA, which was the world's second best performing market last year, with total returns of 26,7%) include Ireland, which delivered a 27,2% total return in 2006, France (21,7%) and Britain (18,1%).