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How to use ETFs to invest in property

by , 06 May 2015

If you're looking to invest in property through the stock market you have a couple of options.

You can invest in individual property investment companies, including real estate investment trusts (REITs). But if you feel this doesn't spread your risk sufficiently, you can look to a property exchange traded fund (ETF) instead.

So how do these ETFs work?

Let's take a closer look…


What are ETFs?


ETFs are index funds. They work like many unit trust funds, but trade on the stock market just like ordinary shares.

By investing in an ETF you gain or lose depending on the performance of the index the fund tracks.

As ETFs are listed on the stock market, you can buy and sell them any time the market is open, just like shares.


How to property ETFs work?


ETFs that focus on property track property indexes. The property index will depend on the focus of the fund.

Property ETFs aim to replicate the underlying index through investing in different property companies.

These property ETFs pay quarterly dividends to shareholders. The yields depend on the funds.

At the moment, there are currently three property-based ETFs listed on the Johannesburg Stock Exchange:

  • STANLIB SA Property ETF Fund;
  • GRINDROD PROPTRAX TEN ETF; and
  • GRINDROD PROPTRAX SAPY ETF.


Benefits of investing in property ETFs


By investing in property ETFs, you avoid picking individual stocks and gain ample diversification in the sector.

It’s also a cost effective way to invest. If you tried to buy the companies that make up these ETFs, you’d incur brokerage costs for each investment. You only incur one lot of brokerage costs by investing in an ETF.

Over the long-term, you hope to see capital and income growth from your property ETF investment.

So there you have it, how to use ETFs to invest in property.

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How to use ETFs to invest in property
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