The listed property sector saw total returns last year of 36%‚ supported by falling bond yields. The performance of listed property tends to track the performance of bonds‚ both of which are income-generating investments.
Anton de Goede‚ fund manager at Coronation Fund Managers‚ said at the South African Property Owners Association (Sapoa) International Convention and Property Exhibition at Sun City on Wednesday that the biggest risk to the industry was the prospects for bond yields. De Goede said much of the total returns in the local sector had been driven by listed property’s correlation to the bond market. Also‚ given the number of new property listings over the past 18 months‚ the sector could be at the “top end of the cycle”‚ and was possibly in a similar position to the small caps and information technology boom seen in the late 1990s. This led to stock price inflation and while a collapse was not likely in the local listed property sector‚ a correction was possible.
Andrew Brooking‚ finance executive at Java Capital‚ said that it was unlikely that bond yields would decline further‚ “so it is hard to see the general value of listed property stocks increasing”. However‚ the performance of the sector was not uniform‚ and there were “pockets of very deep value” in some listed groups and other groups which were looking to list. “The sector has delivered and performed incredibly well by any metric. There will be no massive correction or implosion‚ but the rocket fuel that is yield compression‚ is probably out of it now‚” Brooking said. He said the biggest risk was “a combination of a dramatically weakening rand‚ and a weakening in our bonds”.
Growthpoint Properties executive director Estienne de Klerk said economic growth was a concern‚ as this is what drove demand for rental space. In addition‚ double-digit increases in administered prices would also have a “huge impact on the margins of our business”.
Lesiba Maloba‚ GM of property investment at the Public Investment Corporation (PIC)‚ said although the PIC was optimistic about the sector thanks to the quality of underlying assets and management‚ a concern for the PIC was the sector’s illiquidity. This meant if there was a downturn in the market‚ the PIC’s significant investments in listed property could not be moved quickly.
But Brooking said that liquidity in the sector was “a work in progress”‚ and the sector had grown significantly‚ while consolidation would improve liquidity further.
Patrick Sumner‚ head of global indirect property at UK-based Henderson Global Investors‚ said Henderson Global Investors had no South African listed property exposure given the “relatively low growth and relatively high political and economic risk”‚ as well as liquidity concerns. There were only two JSE-listed groups with sufficient liquidity‚ Growthpoint and Redefine Properties‚ Sumner said.
Source: BD