Real Estate Investor Magazine South Africa June 2014 | Page 45

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grow income by managing costs. The third reason for
investing in listed property is that the growing income
stream leads to growing capital values. Listed property
is therefore the only asset class in South Africa at the
moment capable of producing an income yield in excess
of inflation, as well as capital growth in excess of inflation
over the long term.
This is one of the reasons listed property has been the
top performing asset class in South Africa over the last
10 years. Investors have consistently underestimated
the rate of distribution growth and have therefore
underestimated the rate at which prices can appreciate.
Based on the current forward yield of 7.3% and longterm income growth of between 7% and 9% per annum
(which should result in long-term capital growth of
between 7% and 9% per annum), listed property should
deliver total returns of between 15% and 18% per annum
going forward. This is no different to the returns the
sector produced in the last three years.
The final benefit of investing in listed property in
a balanced portfolio is that the returns from listed
property are uncorrelated with the returns from the
South African equity market. This implies that adding
listed property to a balanced portfolio to replace some
of the equity allocation would produce the same or a
similar return, but with lower capital volatility.
Numerous studies have been conducted globally
that lend support to this. Unfortunately the relatively
small size of the listed property sector in South
Africa means that most large fund managers are
not able to allocate an optimal allocation to listed
propert y. For that reason, most South African
investors have had little or no exposure to the top
performing asset class in South Africa over the last
10 years.
While the benefits described above are the absolute
benefits of investing in listed property, there are also
relative benefits (i.e. rather invest in listed property
than in direct property). An investment in listed
property typically does not require a significant capital
outlay and investors can invest through a monthly
debit order from as little as R500 per month. Even a
www.reimag.co.za

R500 investment will give the investor exposure to
a high quality, diversified portfolio of commercial,
industrial and retail assets tenanted by the country’s top
companies. Listed property is a far more liquid way of
gaining exposure to commercial property. Whereas the
sale of a building may take months to conclude, selling
shares in a listed property company can be completed in
a matter of minutes.

“Listed property offers both
absolute and relative benefits
to investors looking for high
initial income yield...”
The costs of investing in listed property are significantly
lower than investing in direct property, where brokers’
commissions can be high. The management of the
property portfolio is undertaken by professionals and
the investor is not required to undertake stressful
negotiations with tenants when leases expire.
The introduction of SA REITs last year confirmed
the tax dispensation for listed property companies and
trusts that meet the requirements for SA REIT status.
A qualifying SA REIT does not pay corporate tax or
capital gains tax. This means that an investment in listed
property through a retirement fund, retirement annuity
or living annuity is not subject to any tax leakage.
Listed property offers both absolute and relative
benefits to investors looking for a high initial income
yield, inf lation-beating income and capital growth,
and a cost-effective means of accessing a high quality,
diversified portfolio of commercial property. The asset
class is expected to continue growing in South Africa,
both in terms of market capitalisation and importance in
diversified multi-asset portfolios.
Given the current forward yield and inflation-beating
income growth forecast in the medium and long term,
listed property in South Africa is expected to deliver
returns in excess of 15% per annum.

RESOURCES

Grindrod Asset Management
June 2014 SA Real Estate Investor

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