INTRODUCTION: Conventional investment wisdom says that you should invest part of your wealth in property. There are several ways to invest in property. You can invest in physical property. This is risky, but some people are very good with this. If this is not your strong point, you have the option of investing in property shares on the JSE.
PHYSICAL PROPERTY: Many people will buy at least one property in their lifetime, their house. The advantage is that you can get a bond and pay it off over say, ten years. You can go further and buy a house as an investment and rent it out. Your tenants will in effect pay off your bond. But there are risks. Tenants may not pay their monthly rentals, or they may neglect the property. They can contact you in the middle of the night to fix a broken toilet or leaking roof.
LISTED PROPERTIES: The alternative is to invest in listed property companies. You can invest in prime properties, like the V&A Waterfront in Cape Town, Sandton City in Johannesburg or anywhere in the world, and you will have professional managers managing the properties. You will not get a bond to invest in listed properties – “gearing” is not available. You should start small and build up a diversified property portfolio. Many property companies are registered as Real Estate Investment Trusts (REITS). REITS are strictly controlled and are safe investments. They may not incur excessive debt and they must distribute 75% of their income to shareholders.
DIVERSIFICATION: Listed property allows you to diversify your property portfolio between several property sectors, like offices, retail property (mostly malls), residential property, hotels and industrial property. Each sector has its own subsectors. Geographical diversification further allows investors to invest anywhere in the world.
STELLAR PERFORMER – INDUSTRIAL PROPERTY: Retail and commercial properties are still clawing their way back to pre-Covid-19 rates. The outlook for industrial properties is far more positive. Sub-sectors like logistics and warehousing are outperforming segments like manufacturing and industrial parks. While office space and malls are in oversupply – SA has the 6th highest number of shopping malls in the world – industrial properties are in short supply. Between 2019-2022 the number of building plans passed for industrial buildings decreased by 39%. Buildings completed dropped by 23%.
TOMORROW’S TENANT: What is tomorrow’s tenant looking for? The industrial sector’s look is slowly evolving. Increasingly tenants are seeking to offer a more user-friendly environment for workers. New warehouses will have a modern and corporate look mirroring the brand and products of the tenant. Off-grid power is also important. Larger corporates are setting up a campus-style environment that allows for the cross-pollination of ideas and relaxed interaction between different business units. There is also a growing demand for smaller units with additional parking that mimics the “office park” environment. Good security and location in a well-maintained area are important. Combining retail with a warehouse is also popular.
CONCLUSION: There are a host of superb REITS listed on the JSE. The biggest REIT on the JSE is Growthpoint (JO:GRTJ) with 432 properties, which include five hospitals and the successful V&A Waterfront in Cape Town. It also owns industrial properties and gives you offshore exposure as well. Two pure industrial companies are Equites (warehousing) and Stor-age (small storage units). Both Equites and Stor-Age (JO:SSSJ) have exposure to the UK. Sirius is the leading operator of branded business parks in Germany. Irongate has exposure to 27 properties, including industrial properties, in Australia.
The following REITS will not give you exposure to industrial properties but are nevertheless attractive options. MAS Real Estate has a big exposure to shopping centres in Romania. Vukile has a big exposure to shopping centres in Portugal. NEPI Rockcastle is the premier owner and operator of shopping centres in Central and Eastern Europe, with a presence in nine countries. Liberty Two Degrees (JO:L2DJ) has a predominantly retail focused portfolio which includes the iconic Nelson Mandela Square (NYSE:SQ) and Sandton City. Attacq (JO:ATTJ) owns the Mall of Africa shopping mall located in Waterfall City, Midrand, industrial properties, and hotels.