Aug 11, 2008:
LISTED property is cheaper than fixed property because of the large fall in listed property prices since November last year, and it could be a good buy for a would-be investor.
This would especially apply to those who do not have experience with fixed commercial property and want an investment that offers easier trading possibilities.
Listed property is a more “passive” investment than fixed property as fixed property requires a level of experience.
David Green, MD of Pace Property Group, says listed property is a “passive investment whereas fixed property requires more expertise and attention”.
“Generally, the investors are different. A fixed-property investor would be seeking to add value and create wealth from his property investments. To this extent he would adopt various means to extract the highest value.
“The listed property sector, however, does not offer capital growth directly to the investor, but does offer the investor an investment in a portfolio of properties, thereby diversifying the risk,” says Green.
Furthermore, listed property can be quickly traded as the units are sold daily on the JSE “whereas it does take some months to trade out of direct real estate”.
“It is cheaper to buy listed real estate than fixed property because the brokerage fees on listed investments are lower than conveyancing fees, bond registration fees, valuation fees and transfer duty where applicable.”
Green says listed property and fixed property both offer good value now, but with listed property “one can take a shorter-term view”, which is not necessarily the case for fixed property, which is generally a long-term play.
“Also, an investment in listed property requires less experience in a particular property market than investing in direct property.”
Gary Garrett, head of property finance at Standard Bank, says that historically investors have paid a premium for a listed property counter relative to the direct property it held, especially up until November last year.
But from November to June this year, the listed property sector shed about 37% of its value because of global market woes and rising interest rates locally.
Garrett says that over the past six months it has been cheaper to own listed property counters than the fixed underlying properties.
“It still is cheaper, although there has been some recovery in listed property, of about 7% to 10%. We would anticipate that recovery to continue if interest rates remain stable,” he says.
Andre Stadler, MD of Catalyst Fund Managers, says he thinks the listed property sector always prices itself “forward”, meaning that it tends to lead the fixed property sector.
“There is generally a delayed effect between what happens in listed property and the direct property market, both in upward and downward cycles.
“During an upward cycle we generally see listed property trading at a premium to net asset value and in a downward cycle it generally trades at a discount to net asset value until the pricing in the direct market catches up.”
Stadler says listed property is cheaper than fixed property and offers an “easier access point for an investor” than fixed property.
But he says the fixed property market pricing “will adjust so there is more equilibrium between the two markets”.
Stadler says there is a problem of a lack of liquidity in both listed and fixed property at the moment and not a lot of trading taking place.