Real Estate Investor Magazine South Africa July 2013 | Page 58

GLOBAL LISTED BY MIKE WATTERS Global Diversification T With the international REIT market he term “global village” in investment parlance is now as relevant to real estate as it is with the other major asset classes such as equities, bonds and currencies. Investors have an almost unlimited choice when considering an investment in global real estate. The overriding consideration, that “property is a local asset”, should however always be kept in mind. The conundrum for investors in global real estate is therefore “how can you safely invest in a global asset class that has very local characteristics?” Even w it h today ’s power f u l internet search engines such as Google, it would take a potential investor an inordinate amount of t i m e t o a n a l y s e l o c a t i o n specific real estate opportunities in suff icient detail to make an informed investment decision. This could be achieved by working with a trusted agent or middle man and an experienced property/ asset manager but as experienced property investors know, real estate can be as much a liability as an asset if not managed well. 56 6.0% The answer lies in looking no further than the listed environment of the quoted Real Estate Investment Trust (“REIT”). This vehicle is now a fully-f ledged, universally accepted mature investment product that offers considerable advantages over fixed real estate. Among these are: • liquidity; • real time pricing; • professional management; • local knowledge; • diversification or sector specialisation; • size; and • tax transparency. UK IPD All Property Yield minus UK 10 year Gilt 5.0% 4.0% 3.0% 2.0% Property looks expensive 1.0% As South Africa has already joined this international trend, the intimate workings of the REIT vehicle will be assumed as a given for the purposes of this article. Timing your investment Having made the decision to invest in the international REIT market, the next decision is to consider the macro-economic conditions in global sub-markets. Property yields (and by def inition prices) are driven by numerous factors. The most significant of these are considered to be: • expected (real) growth rates; • pricing relative to sovereign long Average bonds; and • pricing relative to underlying net asset value. Property looks cheap An additional factor in recent times has been the quantitative easing (“QE”) programs initiated by central banks which has become a major influencing factor of late. 0.0% -1.0% -2.0% 2004 July 2013 SA Real Estate Investor 2005 2006 2007 2008 2009 2010 2011 2012 2013 The graph on the left shows how markets can swing between relative over-valuation and under-valuation. In this example U K property prices soared to unrealistic levels up to www.reimag.co.za