The third quarter of this year was again characterized by volatility, although less so than the previous quarter. Strong company results supported a 10% increase in prices from mid - August until the end of the quarter with the market ending7%up over the quarter.

The short term direction in prices will be dependant on economic indicators for interest rates, particularly consumer spending, credit extension and inflation. Global sentiment towards emerging markets, as always, remains a risk.

On the positive side, the fundamentals in the underlying rental markets remain extremely strong. Future prospects are supported by very low vacancies and high building costs that have resulted in a sharp rise in rentals on new developments and this will a positive impact in existing portfolios as lease come up for renewal. Although the economy is showing signs of slowing, GDP growth remains sufficiently high to support demand for non - residential property, also supported by high-expected growth in Government spending in certain sectors of the economy. This bodes well for continued income growth that will support prices going forward.

2007 started verymuch in the same vein as 2006 ended. The strength in the rental market persisted with average growth levels coming through company earnings exceeding 12%. The nature of property revenues are relatively stable due to the fixed term leases and the pace at which new supply comes to market. Therefore, it is unlikely that the cash flows will show any negative surprises over the next 12-18 months. The macro factors are also holding up quite nicely with the long bond remaining stubbornly strong (aided by the thin supply of government paper, as Treasury is not in need of any significant funding). Ambitious GDP targets are also very sight spurring on business and thus the need for commercial space. The third pillar of support is the excessive demand for a relatively illiquid sector.

Local institutions, together with a spate of offshore investors, have opened up their cheque books for this limited commodity. This demand/supply imbalance has resulted in a strong momentum in stock prices. Needless to say with all the good news coming through, the STANLIB Property Income Fund had another stellar quarter.. The quarter wasn't without a bit of drama, as February saw emerging market concerns pull prices back almost 7%in aweek. Prices have run very hard and have filtered in a lot of the good news, so to expect these same returns for each quarter to the end of the year may be overly ambitious. We do, however anticipate a strong performance for the following 12 months in the region of 21%. The caveat is still aweakening of the long bond, as well as emerging market concerns and a 'flight to safety'

The performance of the fund for the fourth quarter of 2006 was a total return of 18.15% of which 2.27% was income and 15.88% was capital. The Total Return for calendar year 2006 was 26.52% which was ahead of expectations. The listed property market had discounted the December interest rate increase which was further cushioned by yet another spate of strong listed property company results during the quarter. Fundamentals in the underlying rental markets remain extremely robust, supported by solid GDP growth and a rising fixed investment cycle. Landlords continue to report higher rentals on renewal of leases and vacancy levels are the lowest in almost 10 years. There could still be some short term capital volatility during the rising interest rate cycle, however the longer term prospects remain encouraging.

The property exposure of the fund is as follows:

Retail 46% Gauteng 63%
Offices 34% Western Cape 20%
Industrial 19% KwaZuluNatal 8%
Specialised 1% Other Provinces 9%
Offshore 0% Offshore 0%
Total Properties 100% Total Properties 100%


Because of continued inflationary pressures in the economy, SA interest rates are expected to move up by a further 50 basis points in the first quarter of 2007. The direction of interest rates thereafter will be dependant on economic data over the next few months. The fund has declared the distribution for the fourth quarter of 2006 of 4.11 cents per unit, which was as expected. For calendar year 2007 the fund is expected to generate a

Total Return of14%(before fees),with 7%being income yield and 7%capital appreciation.