Listed property has always been an excellent investment.

But the prospects for the nearly 20 listed property funds are currently less than positive.

Investors will therefore have to be very careful and more selective.

Coronation Fund Managers says listed property has offered investors a firm average return of 23,2% per year over the past 10 years. This makes listed property the asset class that has fared the best during this period – even better than local shares (17%).

But what about the next decade?

Coronation’s forecast is a return of only 9% to 10% per year – lower than the forecast for local and international shares alike and a tad higher than for unit trusts.

This does not mean that listed property is no longer a good investment. But investors will have to lower their return expectations.

Louis Stassen, senior portfolio manager at Coronation, says he is “nervous” about the listed property market.

Individuals can invest directly in any of the property shares on the JSE via one of the online platforms or through a broker.

To decide which shares to buy, specialist knowledge and good advice are usually required.

Something which investors have to take note of is that shares such as Growthpoint and Redefine are far ahead in this sector as far as market capitalisation is concerned. Together they represent more than a third of the sector’s R110m.

To buy one of these two is actually to buy the index of listed property.

An investor looking to do it on his own, has to do some research. If there is a specific property share you’re interested in, scrutinise the underlying investments a little more thoroughly. This usually entails looking at trade, industry and retail property developments.

Investigate each and ask yourself whether you know these properties. If so, what are the prospects? Certain office blocks and shopping centres are starting to look a little run-down and fatigued – do you really want to invest in them?

A professionally managed fund that invests in listed property, is perhaps a better option and worth the additional costs. Ian Anderson, head of investments at Grindrod Asset Management, says the small listed property companies tend to fare better in the long term than the smaller ones.

Grindrod Asset Management was recently appointed to manage the Nedgroup Investments Property Fund – a strategy that Nedgroup follows by which he identifies and chooses the best specialist investors for its funds.

Anderson, who will be responsible for the day-to-day management of the fund, has a long history of property funds dating back over 15 years when he was the investment director of Marriott Asset Management, which implemented the first investment instrument for listed property.

“Small capitalisation shares in the listed property sector have fared nearly 6% better than the large capitalisation shares since August 1998 and more than 8% better per year over the last five years,” says Anderson.

He expects the SA listed property sector to deliver a return rate of 8,5% – similar to the return rate of unit trusts with a longer lifespan.

“The distribution or income growth is expected to grow by a 7% average per year over the next three years, which translates into an expected 15% return per year. But investors have to be warned that price fluctuations will occur over the short-term, but the long-term achievement will depend on the initial return rate and level of income,” he says.

While the income growth from listed property will decelerate, it will still beat inflation in the next three years.

Anderson also points out that one of the aspects that make investments in listed property so attractive is its often low correlation with general shares. This offers investors diversity and lessens the volatility in their portfolio. – Shaun Harris, Sake24

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