The first piece of investment advice I received was when I turned 18. My father told me that I must invest a third of my savings in property, another third in equity and the remaining third in cash.
This investment philosophy was pretty ubiquitous in the 1980s and explains why so many South Africans still firmly believe that property investments, especially residential investments, should form the foundation of investment strategies.
However, the market has changed significantly over the past 20 years. Apart from many regulatory changes, which had a negative impact on investment-focus residential properties, the listed property sector has consistently been one of the best performing sectors of the JSE.
The sector’s market capitalisation has grown from around R30 billion in 2004, to over R400 billion today, mainly driven by new listings and the introduction of Real Estate Investment Funds or REITs as a sub sector. Although this represents impressive growth, it was off a very low base and only represents a small percentage of the total R13 trillion market cap of the JSE.
This may also change over the next decade.
Significant education is being done in the sector, which attracts more investors to it. There is a perception that the industry has not established itself and that investors see listed property as a new asset class, and not merely as a subsector of equity investments. Other investors may see listed property investments as a riskier alternative to bonds.
The current fragile economic climate may also focus the minds of investors, as the sector performed relatively well during the 2008 and 2009 international financial crisis. Property prices have also not grown excessively following the crisis. The sector may therefore be seen as a defensive investment option in the current depressed economic environment.
A lot of education still needs to be done to highlight the potential benefits of listed property, especially with the emergence of more specialised REITs, such as residential property.
This publication of Property Mogul focuses on listed property investments, and hopefully it will contribute to a greater understanding of investments in listed property.
Read the first edition of Property Mogul here.
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