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Property trumps share returns

Johannesburg - Properties have been South Africa's finest investment vehicle over the past decade, defying the norm that equities generate the best long-term returns.

According to Deutsche Bank computations, for the 10 years to October 2009 total returns from property unit trusts were 22.8%, resources 20.8%, and the JSE All-share index 17.3%. Inflation was an average 6.7% over the same period. Cash has been one of the decade's weaker investment vehicles, because of declining interest rates.

Data from real estate performance analysts IPD showed total returns on property were 18.11% for the 10 years to end-2008. Retail properties were the best-performing sub-sector with a 19.38% average return, while industrial properties delivered 18.9%.

Similarly, figures from Acsis Limited has shown average property returns from 1999 to 2008 were 23.9%, equities 20.8%, bonds 15.4% and cash 10.7%. Inflation is recorded at 6.5% over this period.

Historically, equities have consistently delivered the highest returns, about 16% for the past 40 years and higher than any other asset class.

Beware of cycles

Jacques Grove, MD of commercial property investor and developer firm Grove Group, said SA's main cities have been the biggest propellers of growth for the sector. "There is more happening in these areas," he said. "You can see a higher demand for stock and competition between buyers."

He said economic and population growth is the biggest driver of property prices. Additionally, "property prices are underpinned by replacements costs which lift up the actual value of property", said Grove.

With investments it becomes important which part of the cycle you buy in. According to Davids, the starting point of the comparison - mid-1998 - is a critical determining factor of which investments would have brought good returns.

Resources rallied strongly since June 1998 and have outperformed other sectors.

Financials were at their peak in 1998. "Financials have been one of the worst broader indices in the past decade; people were expecting a lot more," said Abdul Davids, head of research at Kagiso Asset Management. According to Deutsche Bank, returns from financials have averaged 12.7% for the 10 years to October 2009.

Article by: Nolulamo Matutu - www.fin24.com