PUTs better value after rand plunge

15-02-2002

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, causing the property unit trust (PUT) yields to increase slightly, says Rode Report editor Dirk de Vynck.

He says property loan stocks' dividend yields are at 13,0% while PUT dividend yields are at 14,4%. "It is interesting though that these yields have been tracking bonds downwards since mid 1998, which would imply that investors see the two assets in a similar light.

"Bonds are regarded as a relatively safe investment, with the implication that listed property is regarded likewise. But our figures to the end of December show that PUT yields have climbed slightly as investors swop listed property for rand-hedged investments. We must assume then that listed property does not perform well when the rand weakens, as was the case the last few months."

De Vynck says the recent interest rate hike also places upward pressure on bond yields. If the pattern of the past three years repeats itself, PUT yields should track bond yields. PUT yields were at 12,1% in July 2001, whereafter they gradually strengthened to 14,2% at the end of December. He says the All Bond Index (ALBI) stood at 11,13% in July 2001, at 11,67% in December 2001 and is currently at 11,77%.

When PUT yields increase, PUTs' capital value decreases. "Thus, based solely on PUT yields and capital values, PUTs (a proxy for the listed property sector) now offer better values than at the end of July 2001.

"The possibility of upward inflationary pressure after the plunge of the rand would also put upward pressure on rentals, which would be good for listed property."