The benefits of investing in listed property
When we talk about listed property, we refer specifically to real estate listed shares on stock exchanges. These entities are known as Real Estate Investment Trusts or Property Loan Stock Companies, and they are companies that own and manage property listed on a stock exchange. The benefit to investors is that they have access to premium commercial and industrial property that they would not normally have access to and also the fact that these properties are managed by experts on their behalf. Investors simply buy shares in these listings as part of their investment portfolio to gain property exposure. An example of this in Namibia are Oryx Properties, whilst in South Africa, there are many more such as Growthpoint, Resilient, Redefine and Hyprop.
Before talking about what growth investors can expect in listed property, it is vital to indicate how important the asset class is as part of a well-diversified portfolio. Real estate returns usually have a small correlation with that of other asset classes, such as long-term bonds or interest-bearing investments.
That is one of the reasons we diversify - to minimise the volatility of a portfolio. If the economy stagnates or worse, finds itself in negative growth, interest rates will usually decline as a stimulus for growth. Such a scenario is suitable for gains in property listings and the total portfolio volatility is reduced. Property has also rendered very attractive returns above inflation in the past.
However, a concern for local investors over the past few years has been that property returns have dropped dramatically. For example, at the end of October 2020, listed property was down by more than 50% over a 12-month period and combined growth over the past ten years negated. Property then rebounded in November and December 2020 and yielded growth of around 30% for the 2 months. The question investors now ask is what they can expect from property in the months ahead?
Let me start by emphasising that property is a long-term investment and investors must be prepared for severe volatility, especially in the short term. Our view is there can be three possible outcomes going forward. First, the “bull scenario", or best-case scenario, is for growth of around 40% for 2021, and 29% per year over the next five years.
Then, the “bear scenario", or worst-case scenario, still looks good with slim chances of a capital loss and a good chance of growth of around 12% per year for the next five years. The third scenario which is our “base case scenario" is growth of 22% for 2021, and 22% per annum for the next five years.
Our advice to those who already have property in their portfolio is not to sell at this point in time. Those investors who have no or little property exposure in their portfolios, are advised to increase that exposure in line with their investment goals and risk profile. Be sure to gain proper investment advice before making any significant adjustments to your portfolio. The Capricorn Property Fund offers investors the opportunity to access quality listed property. For more information, visit the Capricorn Asset Management website at www.cam.com.na,speak to your financial adviser or contact us directly on (061) 299 1950.