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DID you think bonds and cash were a flashier form of an
asset class than property? Well, think again as listed property investments
have emerged as investments that offer flexibility and liquidity.
This is according to Ian Anderson, the chief investment
officer at Grindrod Asset Management, who insists that listed property is far
more attractive than bonds.
"Bonds offer yields of 7.8% with no prospects of income
growth. (On the other hand,) cash provides negative real yields," says
Anderson.
"Returns of 12 to 16% per annum can be attained from
listed property over the next five years."
With listed property as an investment option, you do not
need to be landlord of a physical building to enjoy the benefits of long-term,
inflation-hedged capital growth and a regular attractive income.
It is also a far cry from owning physical property, which
brings with it the hassles of regular maintenance and high risk of exposure to
a single building with a handful of tenants. Listed property investments
provide exposure to a range of properties without these headaches.
"With listed property funds' underlying assets
comprising a range of some of the best properties in South Africa that are only
commercial and not residential - such as shopping malls, warehouses and offices
- rentals are more certain and risk is spread and reduced," he says.
"By investing in listed property, you get the two types
of investment diversification.
"Firstly, you are diversifying the volatility of your
portfolio as the listed property sector has a relatively low correlation with
other asset classes. This makes listed property as integral as equities, bonds
and cash to any diversified investment portfolio.
"Secondly, by adding an income stream from the property
sector you are further diversifying the source of your investment returns from
a different sector of the economy."
Tax plus for retirees
What can you expect from listed property? These investments
typically offer equity type returns with lower volatility. In the past, they
have offered a significant yield premium over equities, which pay dividends and
have matched the income yield from local government bonds.
"But unlike bonds, listed property yields have the
potential for growth through the growth in income from the underlying property
investments," Anderson says.
"Returns are driven by a high initial income yield and
inflation-beating income growth. The high level of current income is paid as a
regular income stream through quarterly or bi-annual distributions and you
benefit through the growth in that income over time (as rentals increase
annually)."
He says listed property investments are ideal if you are
income-dependent or retired, or have a conservative to moderate risk profile.
"Income is taxed in your hands as interest at your
appropriate tax rate.
"This is likely to benefit older retired investors. If
you invest in listed property through a living annuity, preservation fund or
retirement annuity, you enjoy the full benefit of the high income, as no tax is
deducted in these investment vehicles," Anderson says.
"You should be prepared to invest in listed property
for the long term and keep your investments for at least five years," says
Anderson, adding that it is always best to consult a financial planner for
advice.
- Fin24
