The Reserve Bank did not change the Official Cash Rate (OCR) at its review on Thursday, keeping it at 3%.
Reserve Bank Governor Alan Bollard said: "Interest rates are now projected to rise to a more limited extent over the next two years than signalled in the September statement. The pace of economic growth appears to have moderated."
Most commentators take this to mean there is unlikely to be any rise in the OCR until at least the middle of next year, unless some economic indicators change dramatically over the next few months. The ability to get a good return on an investment for income is very subdued.
One area of the market that is yielding good returns is listed property. In my previous column of November 22, I mentioned a few of these property funds.
There are eight listed property unit trusts and the AMP office Trust has recently morphed into a property company. Yields are quite high, compared to bank deposits.
There are several advantages in owning these funds. -
• Funds such as Property for Industry and Goodman Property Trust make quarterly distributions.
• The funds are Portfolio Investment Entities (PIE), with much of the distributions excluded (tax free).
• Most of the funds are easily tradeable (liquid) on the open market.
• Dividend reinvestment is offered by nearly all at a 2% discount to the market price on record date. Compounding is an excellent way to increase your holding.
• You can choose a variety of different property investment, from shopping centres, office blocks, industrial warehouses and/or medical centres and hospitals.
• There is opportunity for capital gain in the unit price.
At the time of writing, the Argosy Property Trust (formerly ING) was on a yield of 10.2% with a unit price of 71c. The Goodman Trust, with a price of 95c, was yielding 8.5%, and Kiwi Income Property Trust 7.3% with a unit price of 98c. Other funds yields were about 5%-6%.
There are always acquisitions and sales in these funds. At present the Vital Healthcare fund has a rights issue at $1.05 to purchase an additional 12 properties in Australia. The current yield on this fund is 5.5% but expected to rise to 8% (as per the investment statement) if the acquisition goes ahead.
Property for Industry actively manages its portfolio and most others are always tweaking away, refining their holdings. The funds generally have high occupancy rates (98% is common), as their leases are well managed.
One major advantage of owning these funds in your portfolio compared to owning property directly is that as an investor you have no tenants (and all the associated hassles) to deal with.
• Peter Smith is a certified financial planner and is principal of Kepler Group Otago, Dunedin. Email: pete@keplergroup.co.nz. A disclosure statement is available on request and free of charge.
