Property funds still offer strong returns

Property funds still offer strong returns by DARANA CHUDASRI

Investors looking for steady income streams would do well to consider adding property funds to their investment portfolios.

Listed property funds generated quite strong returns in 2009, with dividend yields generally outpacing that of property stocks, albeit with less opportunity to benefit through capital gains.

As of April 2, of the 26 property funds listed on the Stock Exchange of Thailand, 19 offered dividend yields of over 7.3%.
Tops in the sector in terms of dividend yields were the Urbana Property Fund, a serviced apartment fund offering annualized returns of 11.09% followed by Major Cineplex Life style at 10.47% and Centara Hotels & Resorts Leasehold, a fund managing hotel on Koh Samui at 10.42%.

Like stocks, property funds offer investors returns in two ways-dividends and capital gains.  Dividends are paid out as a portion of cash flows generated by the property itself, whether it be through hotel room revenues in the case of CTARAF or commercial lease revenues in the case of a fund such as CPN Retail Growth.

Opportunities for capital gains mean while fluctuate based on a number of factors, including the overall economy, operating results, net asset values, market conditions and trading liquidity.

Of the 26 listed funds, only five are actively traded with volume averaging over 1 million baht per day: CPN Retail Growth, Samui Airport Property fund, Ticon Property Fund, Future Park Property Fund and Quality Houses Property Fund.

Four types of property funds exist in the Thai market, covering assets such as residential property, commercial property, hotels and airports and industrial estates and warehouses.

The Securities and Exchange Commission plans to permit the launch of new infrastructure funds this year, where tollways or power plants may serve as the underlying assets in a fund.  Jotika Savanananda, president of SCB Asset Management, said each property fund class offers different types of risks for investors.

Residential or apartment properties typically offer the lowest risk in terms of volatility in revenues, followed by office buildings where lease rates are typically fixed for several years.

The highest risk, particularly given the political volatility of the past several years, are hotels, as rental rates are set daily and performance hinges on broader tourism trends.

Mrs. Jotika said the key for investors is diversification.

"No matter what type of property fund you pick, asset quality is a key concern.  You shouldn't focus only on a single asset class, located in a single location that concentrates on a single customer class." She said.

"Property funds are like fixed income instruments as they offer regular cash flow to investors.  But the difference is in principal guarantees.  Property funds are not a lending agreement, and the investor would be treated similar to a shareholder holding stock, not a debtor as in the case of bonds.  So investors should choose wisely and always diversify.

BANGKOK POST