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SA's listed property funds outperform peers

South African-listed property funds comprehensively outperformed their global counterparts in the first four months of this year, even though analysts expect the sector to lose some momentum in the second half of the year...
SA's listed property funds outperform peers
© Olaf Speier –

In rand terms, the South African Property index had delivered an 8.68% total return for the year to date while the S&P Global Real Estate Investment Trust index, which contains listed property companies from developed markets, had managed 3.47%, said Stanlib's head of listed property funds, Keillen Ndlovu.

SA's property market has performed well amid slow economic growth thanks to, among other factors, strong demand for housing, consistent performances from retail property, more investment in the sector from domestic and offshore sources, and better than expected distribution growth.

Increased demand for residential property over the past two years has seen companies in the listed sector buy into this property type and boost their earnings by charging rents that are relatively higher because of pent-up demand. Shopping centres have also boosted distributions as consumers have continued to shop regardless of pressure on the disposable income from higher utilities.

Also, international retail brands are seeking a presence in SA.

"Overseas brands are very popular in SA. We have only seen a fraction of the clothing retailers which people want to shop from and overall those that have entered our market recently have performed well," Redefine Properties chairman Marc Wainer said.

Ndlovu said yesterday that strong-performing property assets had boosted the sector's income distributions and that more interest from investors had further propelled capital price growth.

"South African property has had an extremely strong start to 2015 ... [This] has been driven by distribution growth, which has exceeded market expectations.

"Likewise, the forward distribution guidance too has been ahead of the markets expectations and a number of listed-property counters now have significant exposure to foreign earnings," he said.

Various local traditional-equity investors had also shown increased interest in listed property this year as other equities had started to look comparatively expensive, said Old Mutual Investment Group portfolio manager Evan Robins.

But local property looks set to lose some of its shine this year.

"Offshore property is looking more attractive relative to the local property market. It is trading at a forward yield of 3.8%, which is comfortably above bond yields and on average 2% above global developed markets bond yields," Ndlovu said.

"This is while local property is trading at a forward yield of 6% compared to South African bonds at 8%; that is 2% below bond yields," he said.

"Offshore property is trading more in line with net-asset value with a better fundamental outlook, whereas local property is trading at a premium to net-asset value of over 40%."

Nevertheless, even though local property valuations were starting to look fully priced, the growth coming from property counters was still attractive, he said.

Source: Business Day


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