Listed property a safer bet

WITH the buy-to-let property market softening in some areas of SA, the average investor with surplus capital is advised to consider investing in the less risky listed property sector.

The listed property sector is strictly regulated and many of the listed property funds' managers have a wealth of experience in commercial property.

Another option, if an investor does not want to buy listed property stocks directly, is to go through a unit trust that invests in the listed property sector on behalf of investors.

Brian Kirchmann, CEO of commercial property association Sapoa, says the property market is in a buoyant and bullish stage and is experiencing a boom "beyond all expectation".

However, he warns that this has also created problems, especially for the ill-advised or inexperienced investor.

Kirchmann says Sapoa receives calls on a daily basis from people wanting advice, especially in the buy-to-let residential market.

"What is most alarming for us is the inexperience of many of these people, who are not major earners, wanting to borrow money from banks to buy for rental purposes. Our advice is that if you have any surplus cash, to go the listed property route and invest money with experienced property investors where there are strict controls."

Kirchmann also warns people to get the right advice when making a large investment in property. "There is no way to make a quick buck, especially in property, which is always an excellent long-term investment. So one needs to have the financial backing and sound advice to sustain this," he says.

As far as the listed property sector is concerned, Kirchmann says that an investor is not locked in for a long period when investing in listed stock. "You can sell whenever you want to."

Mariette Warner, fund manager of Stanlib Property Income Fund, says the listed property sector offers "far lower risk, which is easily quantified", whereas the buy-to-let residential market is an inherently higher risk.

Warner says it is well known that certain areas of the buy-tolet market are overheated.

As far as investing in the listed property sector is concerned, Warner says that an investor can invest a fraction of the amount compared with the capital required for a deposit on a residential property.

In the buy-to-let market, "if the investors have geared (borrowed) and they cannot find a tenant when they take transfer, this causes a distressed market, leading to capital losses whereas currently in the listed property market, the yields are probably double what you would get in residential property".

Warner says property fundamentals are firm with increasing earnings being paid out to investors in listed property. "On a risk-adjustment basis, listed property is easily a better option at the moment."

Colin Young, fund manager of Old Mutual's listed property funds, which include the Old Mutual SA Quoted Property unit trust, says the average person can invest in the listed property sector via a unit trust.

Young says one negative of investing in the listed property sector is the administrative cost. "The positive is you have liquidity, so if you wanted to, you could get out quickly."

Young says you have to open a securities account with a securities company if you want to invest directly in the listed property sector. This involves a lot of administration costs.

"It's easier to go through a unit trust because there is less of an administrative cost and you're employing a professional person (the fund manager of the unit trust) who is employed full time and incentivised in line with investors' interests."

Young says the listed property sector in general is less risky than residential property.

He says prices in general have run to their peak in the residential property market.

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