Rate cut, long bonds drive growth

Posted On Thursday, 23 October 2003 02:00 Published by eProp Commercial Property News
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The listed property sector has shown daily growth in the past week after showing mixed movement earlier this month.

Property-Housing-ResidentialMariette Warner, head of securitisation and fund management at Standard Bank and manager of the Standard Bank Property Income Fund, said yesterday that the strengthening was driven by a cut in interest rates and strengthening long-bonds.

Long-bond yields come down when longbonds strengthen, and because the performance of listed property tracks long-bonds closely, as they are both incomegenerating investments, the yields in this sector also come down. Long bonds, most of which are government- and parastatal-issued debt, are regarded as risk free.

Listed property offers more of a return but at higher risk, and that is why it traded at higher yields than bonds.

"The yield gap between listed property and bonds has remained fairly constant at about 200 basis points," Warner said.

She said property was currently generating higher yields than bonds and was expected to grow, making listed property even more attractive from an income perspective.

"Also because of falling inflation the real yields generated by listed property are significant. This strengthening will continue until the bottom of the interest rate cycle and if falling inflation is still in the picture," she said.

Warner said unit prices in the listed sector had been going up since the end of September, but some areas were still weak. She said that since the weakness in August and September, the property unit trust index recorded growth of 10% while the property loan stock index had shown growth of 5%.

Warner said the property unit trust index growth was fuelled by an 18% growth in Grayprop's price and an 8% growth in Martprop's price.

Grayprop is trading at R3,06, and Martprop at R2,24.

She said the property loan stock index growth was lead in the main by Growthpoint. Its unit price grew by 6% and it is trading at R5,85.

Warner said there had also been some growth from smaller counters. However, the most substantial growth in the property loan stock sector over the past year has been achieved by the smaller companies and new listings.

In the past year Octodec's unit price has gone up 60%, while Premium's price has rocketed up 77%. Spearhead has also experienced tremendous growth, having gone up 64%.

New listings Resilient and Acucap have gone up 28% and 21% respectively.

Warner said the sector was an "attractive environment for new listings if they do not need to place too much equity.

Last modified on Friday, 09 May 2014 15:18

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