Real estate sector
| The real estate sector of the JSE comprises property unit rusts (PUTs)
and property loan stocks (PLSs). There are 29 companies in the listed
When you invest in listed property through a PUT or a PLS, you invest in a portfolio of properties. These properties are in turn let to tenants and you share in the rentals through distributions by the company.
Units are issued to you when you invest in a PUT. When you invest in a PLS, you are issued with linked units, which are made up of a share and a debenture (loan).
Total returns to unitholders are made up of income and capital appreciation of the unit price. The income is usually paid to you twice a year, PUTs and PLSs have to pay out all their income in the form of distributions to unitholders.
The SA listed property index produced a total return of 2,23% in October bringing the year-to-date return to 37,74%. Last year the sector produced a total return of 41%.
The total year to date return for the PLS index is 42,29% whilst the PUT index returned 29,96%.
Andre Stadler, an analyst with Catalyst Securities, says this highlights the effect that savings on debt funding costs, brought about by interest rate cuts, is having on the higher geared PLS funds.
First South Securities analyst Leon Allison concurs that lower funding costs have benefited the listed property sector. Lower bond yields have also contributed to price growth in the listed sector.
But Leon says returns will probably be lower than previous years because the sector is coming off a high base. We expect total returns of 12 to 13% in the coming 12 months based on current prices.
He adds that listed property prices are fairly priced and we dont expect potential capital appreciation in the coming year.
Listed property companies invest in commercial property, which is made up of retail, office and industrial properties.
You can invest in listed property directly through a stockbroker or indirectly, through a unit trust company.
Over the past six years, there have been 16 new listings in the property sector, and 20 companies or funds have fallen away as a result of mergers, acquisitions and delistings. Recently, the sector welcomed CBS property group to its ranks.
There is speculation in the market that two other companies are to list in the sector.
The growth in the listed sector has been massive. Its market capitalisation has increased from R5bn in 1998 to R50bn this year.
The capitalisation of the listed property sector is expected to grow further through new listings, the formation of specialist funds (that focus on one sector only) and further acquisitions by funds and companies.
Listed property differs from the buy-to-let market. With listed property investments, you enjoy diversification of your investments because you buy into a pool of several properties.
Whereas when you invest in residential property, you are usually exposed to one property only. To diversify with residential property, you need to own more than one property, which is very expensive, compared with listed property.
A professional management company handles the management of listed property. In the case of residential property, you can manage the property yourself or use the services of a rental agent to manage your tenant.
This story first appeared in Moneyweb Business in the Citizen
Article by: Chris Nthite - www.moneyweb.co.za