For people who want to generate an income from their investment, listed property offers one of the best income returns of any asset class, being one of the best performing assets over the past few years. So what is listed property ? and what are the advantages of investing?

So what is listed property?

Listed properties are made up of commercial property portfolios that are managed by a property fund and listed on the Johannesburg Stock Exchange (JSE) under the 'Financials ? Real Estate' sector.

These portfolios contain all sorts of types of properties like office blocks, warehouses, but essentially are managed by a property fund to get the best income for investors, who get a share of the portfolio's rental income in the short-term, while the value of the units themselves increases over the long-term, mainly because of the rising value of the properties in the portfolio.

Types of listed property

You can invest in listed property in two ways ? through property loan stocks (PLS) or ? through property unit trusts (PUTs).

Loan stocks and PUTs, which are listed on the JSE, have different structures, but allow you to invest in a pool of properties.

As PUTs are collective investment schemes governed by the Association of Collective Investments (ACI), they can be traded like a share and are listed on the JSE.

With a PLS an investor purchases a unit, which comprises both a share portion and a loan. The loan portion re-pays interest to the investor from income received by the portfolio after expenses, thereby making it an income generating investment.

Should the properties in the portfolio held by the property loan stock company or unit trust manager appreciate or depreciate in value, it will impact on the value of the shares (units) you hold.

A good bet?

?Investors in listed property have enjoyed sound returns on their money since 2000,? says Anton de Goede, acsis investment analyst in Personal Finance.

?An amount of R100 invested in the listed property sector in December 2000 would have increased to almost R484 by March 2006. Since then, the sector?s return tapered off and the R100 would have been worth about R385 at the end of July 2006.

?The listed-property sector has grown greatly over the past five years. The market capitalisation of the real estate sector of the JSE was about R5-billion in December 2000. It reached R66 billion in July 2006.?

Advantages of investing

  • One of the benefits of investing in listed property shares, as opposed to actual property, is that listed property affords you the opportunity to invest in different parts of the property market, such as industrial and commercial property.

  • Listed property serves as a hedge against inflation over the long-term because rentals usually increase by inflation each year.

  • It reduces risk in your overall investment portfolio.

  • For the smaller investor, a listed property investment is more liquid than an investment in residential property.

  • It provides a link to the equity market because you invest directly in the stock market, and there is potential for income growth (similar to shares in which you may get dividend growth).

  • You also know exactly what your investment is worth as it is priced on the JSE, unlike the physical property market where sentiment can play a big role in determining the value of the property.

  • There is no hassle of being a landlord.

  • You can invest relatively small amounts of money.

  • It is relatively easy to trade in listed property investments. Although you pay management fees, the brokerage fees when you buy and sell are quite low compared with the transaction fees of buying and selling residential property.