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Listed property offers better value after rand plunge


Property unit trusts (PUTs) are now offering better value than six months ago as investors are dropping listed property to invest in rand-hedged investments. This has caused PUT income yields to increase significantly, says Rode’s Report editor Dirk De Vynck. The latest Rode’s Report on the State of the Property Market appears mid-February.

De Vynck says PUT dividend yields stood at 14,4% in mid-January 2002 compared to 12,1% at the end of July 2001.

When PUT yields increase, PUTs’ capital values decrease. “Thus, based solely on PUT yields and capital values, the listed property sector now offers better values than at the end of July 2001.

“PUT yields have climbed significantly as investors exited from listed property into rand-hedged shares. Thus, we can assume that listed property does not perform well when the rand weakens, as has been the case over the last few months.”

Furthermore, he says it is interesting to note that PUT yields have been tracking bond yields religiously downwards since mid-1998, which would imply that investors see the two assets in a similar light.

“Bonds are generally regarded as a relatively safe investment, with the implication that listed property is seen in a similar light.” The drastic drop in the rand at the end of 2001 increased inflation expectations, resulting in higher (weaker) bond yields. Thus, the close relationship between bond and PUT yields of the past three years resulted in PUT yields following bond yields upwards.”

The All Bond Index (ALBI) stood at 11,13% in July 2001, at 11,67% in December 2001 and is currently at 11,77%.

“However, the possibility of accelerating inflation after the plunge of the rand would eventually also put upward pressure on rentals, which would be good for property cash flows.”

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