Property analysts and fund managers have generally agreed that total returns from the sector in 2013 are likely to slow following stellar returns in 2012 and previously. The listed property sector recorded total returns of 36% in 2012.

Investment Solutions market analyst Thobile Thukani said on Monday that total returns for 2013 were likely be "in the lower teens", but added that "I wouldn’t be surprised if we see single-digit returns."

The biannual Investment Solutions Asset Manager Survey shows that South African managers have become less bullish about the local equity market, although equities and cash remain preferable to nominal bonds and property in the prevailing market.

Mr Thukani said the future performance of the listed property sector "would largely depend on how bond yields move", given investors’ search for yield and as bonds and listed property were both income-generating investments.

Mr Thukani said while local bond yields had "risen sharply" since May, almost half of managers surveyed expected local bond yields "to climb even further to finish the year between 8% and 9%, while 54% remain neutral".

The expected bond market weakness was largely due to the anticipated move of the US Federal Reserve to reduce its quantitative easing (QE) bond-buying programme.

"The Fed tapering QE has significant implications" for emerging market bonds, given that emerging market bonds would become relatively less attractive than US bonds, Mr Thukani said.

But some local traders were seeing value in the bond market at existing prices, and investments by local traders could limit further bond weakness.

Mr Thukani said returns on listed property were likely to be subdued for as long as weakness and volatility remained in the local bond market.

But he said there were still listed property stocks which had more positive outlooks, although the sector-wide outlook "is less positive" partly due to volatility in the market.

Meanwhile, the survey also showed that in the equity market sectors, the most favoured sectors are banks, insurance, platinum and media, while the least favoured sectors are food and general retailers and gold mining.

Source: BD