Real Estate Investor Magazine South Africa July 2013 | Page 60

GLOBAL LISTED
Performance history together with forecasts
published by rated analysts should be used in
determining who to back.

How much to invest in offshore
real estate
The rule of thumb is considered to be between
10% and 20% of your portfolio should be in
property and about 25% of this should be
offshore. This would equate to between 2.5%
and 5% of your portfolio in offshore real estate.
This can be allocated to internationally
focused SA property unit trusts (eg Oasis
Crescent International Property, Metropolitan
Global Property, Catalyst Global Real Estate);
international property shares listed on the
JSE (eg Intu Properties, Capital & Counties,
Redefine International, Nepi) or international
asset ma nagers (eg A l la n Gray Orbis,
Coronation, Prescient, Cohen and Steers).
The first two can be accessed by investing
ZAR currency whilst the latter will require a
direct foreign investment using your foreign
investment allowance.

The prognosis for investment returns
mid-2007 before retreating significantly. UK
property prices relative to 10 year gilts currently
sit at historic lows.
The South African and Australian listed
sectors are currently considered very expensive
whereas on the f lipside other markets such
as Singapore, Hong Kong and Canada are
probably neutral at the moment. Japan has
had a good run, mainly driven by QE, and is
expensive, whilst the UK, Europe and USA
have further to run.
Once you have decided to invest and have
chosen your desired geographical locations,
the next decision is picking the actual stocks
to invest in. Here you should look at the
individual management teams and the sectors
they operate in.
Redef ine International has a diversif ied
mandate meaning it selects the regions and
property sectors to invest in. It makes the big
decisions on capital recycling and deployment.
If you are a sophisticated investor and feel
you are more experienced in making these
calls yourself, you should invest in the sector
specialists. In the UK these would include,
inter alia:
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July 2013 SA Real Estate Investor

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Office REITS;
Retail REITS;
Industrial REITS;
Storage REITS;
Medical and Healthcare REITS;
Residential REITS;
Student accommodation REITS; and
Infrastructure REITS.

If you are investing via an asset manager,
they will most likely do the analysis and
selection for you.

Choosing your management team
Although property investment is a medium
to long-term game, one should be aware
of shor t-term ma rket f luct uations that
inevitably result from having a listed and
liquid security. Management teams can be
battered by too much “short-termism” from
analysts and shareholders. Investors should
look beyond the short term and support those
management teams that invest for long-term
performance. Eliminate managers that chase
quick fixes such as buying short-term income
or speculative development with capitalised
interest. Future capital expenditure on ageing
portfolios must also be kept in consideration.

R EITS around the world are currently
attracting signif icant income f lows from
investor pools hungry for yield. The central
banks QE initiatives are exacerbating these
f lows by creating “easy money”. Investors
need to be mindful that when the QE tap is
eventually turned off, interest rates will begin
to rise which may cause a negative re-pricing
of REITS.
This eventuality is however considered to
be some-time away – markets are currently
discounting that the Bank of England will
only begin to raise interest rates in late 2016.
The other side of the coin is that interest rates
are only expected to rise once economic growth
rates return to historical norms. This will
inevitably result in rising rental levels that will
counterbalance higher interest rates.
The guide here is to choose REITS with low
to medium gearing levels, where the upside of
rental growth will exceed the cost of higher
interest rates. One also needs to look at those
REITS that have long-term debt and long-term
fixes on their debt - a dose of inflation could
send the prices of these REITS into orbit.

RESOURCES

Redefine

www.reimag.co.za