Abstract
South Africa introduced Real Estate Investment Trusts in 2013 as a way to encourage broad investment into real estate without the need for extensive initial capital outlay. REITs provide a consistent tax treatment of listed property companies in line with internationally recognised legislation. Prior to 2013, property unit trusts and property loan stocks were the only property investment vehicles listed on the JSE. This study evaluates the investment performance of South Africa REITs in comparison to equities, bonds, and property during the period May 2013 to December 2018. The performance evaluation methods employed were the Sharpe Ratio, Treynor Ratio, Jensen’s Alpha, and the M-Squared measure. The results reveal that equities were the best performing asset class, while REITs were the worst performing asset class during the study period. REITs also only offer diversification benefits to a portfolio of bonds as they have a low correlation to bonds. However, the correlation with both equities and property are high, indicating little diversification benefits. The findings provide good insight into South African REIT performance and to investment managers who are considering REITs as a potential investment.
M.Com. (Finance)