Most South Africans know that property is a good investment, and many dream of owning a home one day. Unfortunately, buying a physical property like a house or flat is very expensive, and getting on the property ladder is out of reach for most.
However, budding property-investors have an alternative to actually owning a physical property, says Keillen Ndlovu, who manages the STANLIB Property Income Fund.
People can invest in listed property through a Property Fund offered by wealth management companies (like STANLIB). Ndlovu says investing in listed property involves buying a stake in property companies listed on the JSE (Johannesburg Stock Exchange). Most of us can only get property exposure through the residential market. Listed property gives an average person access to the commercial property market for as little as R500 per month or R5000 lump sum (through a fund like STANLIB Property Income Fund). Investors get to ‘own’ a portion or unit of the listed company that owns buildings across retail, office, industrial, hospital and hotel sectors. This means investors are indirect owners of the various properties.
Listed property is a good alternative to owning physical property. It takes away the stress of doing rental collections, negotiating leases and maintenance work such as fixing air-conditioners, lifts, gardens and gates. The only disadvantage with listed property over physical property is unit price volatility, which means an investors’ unit value can go up or down in the short-term led by changes in the local and global equity markets. Listed property has however outperformed physical property in the long term. Over the last 15 years, listed property has been the best performing asset class (ahead of equities, cash and bonds) in South Africa.
Money is made through rental income from tenants (such as banks, government, major retailers, industrial companies including multinational corporations) who occupy the properties belonging to the listed company. As with all property, there are expenses - like asset management fees, leasing fees, interest costs, electricity, cleaning, and rates and taxes. Whatever is left after these expenses (net profit) is passed to the investor (called unit holders) as income (called distributions). Listed property offers income of about 9%. This is better than a fixed deposit account yielding about 5%. Ndlovu says he is looking at listed property companies to deliver income growth of 6% to 7% over the next year, which is a good investment in the current climate and is better than inflation.
While property fundamentals have softened, listed property still offers good regular income generating ability and positive long-term capital growth prospects.