Property stocks extend losses on JSE

Posted On Tuesday, 04 June 2013 15:33 Published by
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Property stocks continued their slide on Friday, taking the FTSE/JSE SAPY index’s losses to 15% from the peak reached two weeks ago.

JSEThe JSE’s biggest property group, Growthpoint, plummeted as much as 8.35% on Friday, but recovered to close 1.4% lower at R25.39. Hyprop lost 6.07% to close at R68.10 and Resilient closed 2.7% lower at R50.30.

Friday’s 2.7% drop in the SAPY index was a slowdown from Thursday’s 4.42% drop which was triggered by Growthpoint withdrawing its bid for Fountainhead. Growthpoint said it was calling off its bidding war with Redefine since the JSE had allowed the latter to vote its 45% unitholding against the bid.

Fountainhead’s share price tumbled more than 6% on Thursday. It slid a further 4.65% on Friday.

Afrifocus portfolio manager Ferdie Heyneke said the sell-off was unlikely to continue. "The reasoning in the market is while stocks like the popular Growthpoint have shone brightly for years, their appeal started to die as valuations became too steep, but now, after the sell-off, they start looking attractive again.

"The sell-off in property might be related to the volatility in the currency this week and the bonds sell-off. The market became overpriced, but it is one sector that has pulled back to more reasonable price levels."

The medium-term underlying trends "remain pretty much on track" and at these levels stocks may be getting to a slightly better yield again, Mr Heyneke said.

Interest rates are major drivers of yield projections and in the ongoing volatile environment analysts do not expect them to turn up suddenly. Low yields signalled higher prices for yield-based assets.

"On the whole, it looks like the market has a pretty firm undertone and there may be some buying interest in these property stocks," Mr Heyneke said.

Much of the returns in the local sector had been driven by listed property’s correlation to the bond market. In addition, given the number of new property listings over the past 18 months, the sector could be at the "top end of the cycle". It was possibly in a similar position to the one of small-cap, information technology boom of the late 1990s.

South Africa has launched a real estate investment trusts structure, bringing the country in line with global norms. This is expected to increase interest.

As the capital gains tax when properties are sold is removed, international interest is expected to be sparked and more potential property listings could be expected. However, as 75% of their income had to be derived from rental flows, prolonged weaker economic activity becomes a drag for these investments.

The listed property sector is highly correlated to the bond market because of its income generating ability — property income can be predicted with reasonable certainty, as bond yields can.

Foreigners became big buyers of South African bonds in 2011 because of attractive yields relative to elsewhere in the world, which in turn pushed interest in property stocks. Property as a whole has been doing well in South Africa for a while and the market capitalisation of the listed property sector has grown from R5bn in 2001 to more than R200bn as investors chased a combination of yield and certainty of return.

The sell-off of South African bonds, sparked in the middle of the week by crumbling investor confidence in the country, quickly spread to the high-yielding property stocks.

Source: BD

Last modified on Friday, 18 April 2014 09:22

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