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Listed property investments have not always been a favourite asset class among investors. Record high vacancies have plagued the industry and this has been exacerbated by the pandemic as some more tenants get displaced or cancel their contracts.
But there appears to be some opportunities on the horizon and some other benefits that these types of investments offer to those who are willing to look in the right place.
The JSE’s ETF
In May, the Johannesburg Stock Exchange (JSE) launched the NewFunds Reitway Global Property Exchange Traded Fund (ETF), which listed on the JSE Main Board. It was launched in conjunction with Absa and gives South African investors exposure to the Americas, Asia Pacific, Europe and the Middle East.
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Greg Rawlins, Reitway Global CEO says: ‘The NewFunds Reitway Global Property ETF is a conduit for South African investors to a broader universe of Property Equities thus improving diversification. Furthermore, the ETF tracks an innovative Index that is constructed to adhere to a set of rules with enhanced performance as a primary objective.’
Listed property fund variety
It’s really unfair to tar all listed property funds with the same brush as there are so many options and ways that investors can gain exposure and diversification. Andrew Bradley, CEO of Fiscal, explains: ‘Some funds focus exclusively on SA, and some include offshore property securities. Right now, they are all general broad-based funds.
‘A property Unit Trust fund is one that invests in listed property owing securities, e.g., someone lists a fund on the JSE, and they get capital to buy shopping centres, office parks etc, as physical properties, in SA or elsewhere in the world.’
REITs
Meanwhile, SA Real Estate Investment Trusts (REITs) allow investors to invest in property through buying shares in JSE-listed real estate companies. Evan Robins, Portfolio Manager at Old Mutual Investment Group explains: ‘With REITS the companies themselves do not pay tax on the income they distribute to shareholders, the shareholders pay the tax at their own rates.’
There are many other benefits to REITs including that if they’re held within a retirement annuity, pension, provident or preservation fund. Also, when a REIT sells an investment property, it does not attract Capital Gains Tax (CGT).
Realistic returns?
Bradley points out that it’s important to establish what the potential vacancies in the property portfolio. He adds: ‘Depending on how well managed the property portfolio is – if the rental yields go up in time, this will result in capital appreciation too.
Ultimately, investors entering this type of asset class will need some patience. Bradley says: ‘Over the last two years, it has been a very tough time for property in SA so returns have not been great, in most instances they have been negative; however, in the preceding 20 years it was a very good period for property investments. Over the long run one can expect a 5-6% real rate of return all in (capital grown and income yield) from a property fund – but over the short term it can be very volatile.’
Listed property funds may not be for everyone, but they certainly give the average investor decent exposure to returns on property assets that they could generally never own outright – such as a shopping mall.
In addition, unlike real bricks and mortar, it’s easier to get out if you change your mind. ‘Should you need to sell, you can do so relatively quickly,’ says Bradley.
