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Revealed: The four benefits of investing in a Property Income Unit Ttrust

by , 05 March 2014

Smart investors know that to get good returns, they need to spread their risk across four principal asset classes: Cash, bonds, equities and property. And one of the best ways to do that is through unit trust investing. Today, we look at how property income unit trusts can help you diversify your investment into property and cushion your risk while achieving stable returns in other asset classes.

What is a Property Income unit trust?

Normally, a Property Income unit trust has interests across all categories of property - including commercial (offices), retail (shopping centres), industrial (factories) and specialist (hotels, residential). These buildings are situated in diverse geographic areas around the country.

And that’s good news for investors looking for stable growth, explain the experts behind The South African Investor.

Four benefits of investing in a Property Income unit trust

1. Good returns: A Property Income unit trust's portfolio usually has a reasonably high current return and long-term capital growth as its objectives. In most cases, the over or underweighting of companies in the portfolio are the result of ‘bottom up’ selection by the investment manager who’ll pick well-managed companies whose professional management should deliver growth.

2. Double the wealth: As an investor, you enjoy two wealth-building opportunities. Firstly, the distribution or annual yield proves a regular and stable income. Yields can also rise as rentals rise. Secondly, the capital value rises as the value of buildings increased due to higher rentals and appreciating replacement values. This can cause the share prices of property companies, and hence the units in the portfolio, to rise.

3. Inflation-beating: Property analysts point out that property is a real asset with an income stream that has the ability to grow relative to, say bonds. With bonds, the coupon is fixed. In contrast, the yield offered by a property income fund tends to escalate over time. Property can therefore be viewed as a growth asset class. This means that a Property Income unit trust's units can be categorised as an investment with good inflation-beating ability.

4. Low risk nature: Typically, each property owned by the underlying property companies that property funds invest in has scores if not hundreds of tenants. They work in various sectors of the economy. Different conditions and rent escalations apply to their rent agreements. Renewal dates differ. So do vacancy factors in the buildings. This means that there’s built-in diversification across property categories, across regions, industries, tenant-types, lease structures, and rental flows, thereby spreading the risk.

So there you have it. If you’re looking for the best unit trust to invest in, don’t rule out Property Income unit trust. They’re a great investment many investors don’t use.

Revealed: The four benefits of investing in a Property Income Unit Ttrust
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