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Company Listing: STANLIB Wealth Management Limited »

LISTED property may have suffered substantial damage as an investment option, but further big knocks in the coming weeks are unlikely and an upgrade is on the cards. The positive perspective comes from Mariette Warner, head of property funds at STANLIB, South Africa’s largest unit trust company. At one stage in recent weeks, 22% was knocked off values in the listed property market, but those who took the full impact have more to gain by sitting tight than moving out, says Warner. She explains: “Sitting tight is a smart move when a sell-off has been overdone. It’s too late now to head for the exits. The major damage started after May 10 when the flight from the category began. “When a market loses a fifth of its value in a few days, there are usually bargain opportunities in the immediate aftermath.” According to STANLIB’s listed property specialist, the suspicion that good value now exists in listed property was confirmed in early July when signs of institutional buying became apparent. Warner is not unduly concerned that the Reserve Bank’s Monetary Policy Committee meets again in early August – another opportunity for a rate rise, always bad for property. She notes: “If logic prevails, even two more 0.5% rate rises would cause a wobble rather than a freefall. “History suggests the 22% loss after a relatively modest rise was a significant over-reaction.” In March 1998, the prime rate went up 3% and listed property declined by 35%. In June 2006, rates went up by just 0.5% yet listed property retreated by an apparently disproportionate 22%. Mariette Warner adds: “That is either blind panic or most of the bad news of further rate rises in 2006 has been priced into the market well ahead of time. “My conclusion is that limited downside risk is counter-balanced by solid upside potential. So, if you’ve already taken the pain, why not hang around for the gain?” Time in the market appears to be a good antidote to any pain. The major bull-run in listed property began in October 2002. From that time until May 10, capital values rose by 180%! Long-term listed property supporters are therefore net winners despite recent weakness. Another category of investor also seems certain to keep their faith in property – long-term thinkers who look for steady income bolstered by growing rental streams. These investors tend to regard capital growth as a bonus rather than the prime motivation for investing. Warner says they appreciate that capital volatility is an inherent risk in this market. Listed property may have taken a knock, but its strategic role as a risk-diversifier in a balanced portfolio is undamaged. Furthermore, some hard-headed market factors appear to put a solid ‘floor’ under listed property for some months to come. Warner points out: “The forward yield for the next 12 months is 9%, a tad higher than bonds and a lot higher than cash left on call at the bank. “Over the next year, a recovery is more likely than another crash and there is reason to believe listed property will outperform both equities and bonds.” However, she cautions listed property fans not to expect outperformance to last forever.