More growth for PUTS.

Posted On Monday, 14 April 2003 02:00 Published by eProp Commercial Property News
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Property unit trusts can be expected to return to growth in earnings this year and a re-rating of the sector will boost capital values by up to 10%.

James TempletonSo says Martprop Property Fund MD Roger Perkin. He told analysts at a meeting of the Association of Property Unit Trusts (APUT) in Durban this week that values are moving up with bond yields driving down property yields, and earnings growth is starting to improve. 

This view is largely supported by research from Barnard Jacobs Mellet property analyst James Templeton who says the on-going Middle East tensions coupled with the failure of global markets to recover as anticipated is likely to see safe haven assets, such as property, out perform overall markets for an extended period. 

Growth, says Perkin, has stagnated in recent years because of an overhang of office, retail and factory vacancies. The oversupply continues to impact on rent levels, and it may take up to two years before vacancy levels return to normal in the office market.

In recent years tenants, from a position of strength, have been able to negotiate more flexible shorter leases and there has been a tendency for businesses to migrate from CBDs to office parks.

Though it’s still early days, he says there are indications that the oversupply of space may be coming to an end in some decentralised areas, and rents are showing the first signs of rising.

Positive GDP projections and lower levels of speculative development will underpin the stronger trend for office rentals.
“Now is a good time for tenants to start negotiating longer-term rentals, and for investors to look for growth,” says Perkin.

He adds that though industrial rents have improved following increased production, this could be negated to some extent by the effects of a sustained robust rand.

Retail, which Perkin believes will continue to outperform other property sectors, has been boosted by Trevor Manuel’s expansionary budget coupled with anticipated lower interest rates which should boost discretionary spending.

Lower interest rates, he says, will also firm up property unit trust yields.

He says new legislation - such as the new Collective Schemes Control Act passed in March and the binding APUT trust deed just lodged with the FSB (which standardises administration parameters and must be adopted by all fund management companies within the next year) - has given investors in the sector certainty and confidence.

There’s also speculation that several new funds will list in the next year including a R1bn property unit trust.

Marriott Property Services MD, Craig Ewin, says property
unit trusts returned 42% in the year ended March 2003 and outperformed all other sectors. The all share index on the JSE dropped 27%, and the benchmark R153 bond rose 27%, while direct property measured by the SapixIPD index returned 9.5%.

Property unit trusts also outperformed other sectors over
three-year and seven-year periods, underscoring their defensive qualities in turbulent markets. He expects institutions to speed up the conversion of directly held property to listed property.

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