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Staying ahead of inflation

Property funds offer attractive returns but liquidity is a concern.

All investors want their investments to deliver handsome returns, or at least to beat inflation.Thailand’s inflation rate is expected to stand around 3-4% this year, with high oil prices caused by unrest in the Middle East one key factor.The Bank of Thailand last week lifted its policy rate by 0.25 percentage points to 2.5% to curb rising inflation.

Among the choices available in the market, property funds and real estate investment trusts (REITs) are seen as good inflation-beaters.

On average, property funds offer returns in the range of 7-11%- far above those of bank deposits, government and corporate bonds.

Currently, there are 31 property funds listed on the Stock Exchange of Thailand (see table), including the Trinity Property Fund (TNPF) which made its debut on March 8. Their total capitalisation was 92.63 billion baht as of the same date.

Returns and risks for each fund are different. The key factor is the quality of the assets the fund holds and its underwriter.

Normally, leasehold property funds should deliver returns higher than those of freehold property funds by at least two or three percentage points, because leasehold funds hold limited rights and have only a fixed time period (the lease term) to benefit from the assets, according to Terdsak Thaweethiratham,a senior vice-president at Asia Plus Securities.

“Property funds are likely to be an investment that can beat inflation at the moment, but investors should also be aware of the liquidity risks,” he said.

Large funds are better choices as they offer better liquidity.

The track record of a fund’s performance and types of assets are also key factors for consideration.

Among the funds Mr Terdsak recommends are CPNRF (CPN Retail Growth Leasehold Property Fund), SPF (Samui Airport Property Fund), QHPF (Quality Houses Property Fund) and TFUND (Ticon Property Fund).

Sunthorn Thongthip, an analyst at Kim Eng Securities, said that most property funds were not traded very actively in the market. Only five or 10 are considered liquid. Meanwhile, QHPF (Quality House Property Fund), TTLPF (Talaad Thai Leasehold Property fund)and URBNPF (Urbana Property Fund)have announced reductions in capital.

Mr Sunthorn said any downturn was a good time to accumulate long-term dividend property funds, for which yields over the past year have averaged 7.14%.

“We recommend that investors avoid illiquid funds and not expect radical price changes in property funds, as they are long-term investments,” said Mr Sunthorn said.

Jotika Savanananda, the president of SCB Asset Management, said the attractiveness of property funds was improving because of rising inflation and interest rates.

Currently, the majority of the investors are institutional investors such as mutual, provident and private funds,the Government Pension Fund, Social Security Fund, and corporate and highnet-worth accounts. (Bangkok Post)

 

ThaiVest Editorial Team