Those New Zealanders who have long held property investment near and dear to their hearts (and there are many of them) will be interested to know that property has been behind a stellar showing over recent times.
But before you start thinking it might be time to buy that house for sale across the street and play landlord, you need to read on. We’re not talking about ‘direct’ property investment here, but the listed property sector – a cluster of entities known as listed property trusts (LPTs) that are listed on the New Zealand Stock Exchange.
By way of quick explanation: an LPT is a company that buys, owns and manages real estate properties and loans. As they are listed on the share market, investing in them is achieved by buying their shares.
Over the past year, the LPT sector has delivered impressive performance. The sector generated a gross return with imputation credits of 17.3% for the year to the end of April 2012; not half bad, considering the broader share market (as measured by the NZX index) clocked in at just 2.6% over the same period.
“That performance has been driven by retail investors looking for safe yields,” explains OnePath Investment Manager Craig Tyson. “The broader equity market has struggled, finance companies are no longer in the picture of course, and bank deposit rates are at low levels. For people wanting a return on capital, it has been a sound option.”
Tyson points to building occupancy rates hovering around 97% and weighted average lease terms of just over five years as underlying strengths of the sector. “Those fundamentals are strong – they deliver security of cash flow.”
What many investors like about LPTs is that they can have a piece of a tangible asset they know and understand, without the hassle of direct ownership. Because, for all their potential to offer steady returns and solid capital growth, properties can be unwieldy things to acquire, manage and when the time comes, unload. Through LPTs, investors can enjoy the benefits and leave those tricky bits to the experts. What’s more, the investment can be made for a very small outlay with the exposure spread over a broad range of properties.
There are a number of LPTs on the NZX. They all differ slightly in approach, although none of them invests in residential property. Their portfolios are typically made up of retail, industrial, healthcare or office buildings – sometimes diversified across those sectors, sometimes specialising in one of them.
OnePath investors have benefitted from this LPT surge. All their balanced funds (including KiwiSaver funds) have an allocation to property. And there are a range of
single sector funds that invest predominantly in the sector.
“While the recent results have been very strong, the sector has performed steadily over the past decade,” adds Tyson. “The 10-year return for the NZX Property Index (gross with imputation credits) to 31 March 2012 is 9.4% per year. It’s very encouraging that in these volatile times, one sector has performed in line with people’s expectations.”