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Buoyant SA listed property sector likely to remain strictly local

Posted On Friday, 01 July 2005 02:00 Published by eProp Commercial Property News
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The commercial property market and the listed property sector enjoyed a period of exceptionally strong growth last year. So what are the prospects for foreign companies wanting a slice of the rich pie?

Angelique de RauvilleA property developer, who does not want to be named, believes it will not be long before foreign investors show interest in the listed property sector.

But most property analysts say the sector is not yet on the international radar screen and there is no apparent or immediate threat of a hostile foreign takeover of any property fund.

According to the annual index published by SA’s commercial property association Sapoa and the Investment Property Databank (IPD) SA, the sector recorded a total return of 23,4% last year and is expected to be the top performer out of 14 countries measured by IPD.

The IPD database includes the property portfolios of listed property funds, institutions, pension funds and private portfolios.

Angelique de Rauville, MD of listed property portfolio management company Provest, which is part of the Investec Property Group, says any listed company, no matter what type of stock, is always at risk of a takeover.

But she says Provest is not aware of any international property companies "sniffing around" the South African market. "But it’s something that could happen in due course," says De Rauville.

Provest believes a likely investor could be property group Westfield, the large Australian stock. De Rauville says Westfield is a "one-stop shop" — it owns, manages, trades and develops property. It already has investments outside Australia. "We haven’t been given any reason so far to believe that Westfield or another overseas fund is making inquiries into the market," says De Rauville.

"Given Provest’s view that South African listed property is still offering value, we believe it is a matter of time before we start getting interest from international property companies."

This could take the form of a "corporate play on one or more" listed property stocks that offer exceptional value relative to commercial property markets in the US, Australia and the UK.

Sean Segar, a director of Stanlib Wealth Management, says the foreign investment community has not yet seriously looked at South African listed property.

"That is because of the historic size and liquidity, and while that has improved, the listed sector is still not attractive to them," says Segar.

Segar says that the sector is too small to attract the attention of the large, foreign pension funds, for instance.

For instance, international property companies are also funds , which may only invest in retail property in the UK or industrial property in Japan.

Segar says another factor that makes the listed property sector unattractive to foreign funds is currency risk.

"To offset that currency risk, they will expect super returns."

Segar says Stanlib’s research shows that local growth is not superior to growth in the US and Canada, for example.

Colin Young, property sector head at Old Mutual Asset Management, says South African listed property stocks will not add volume to international property funds’ portfolios, "which are large and always in strong currencies".

Young says foreigners buy residential property, but it is unlikely the listed property sector will see a "hostile takeover" from abroad.

"I see foreign (property) investment taking place in a direct business sense as foreign companies would build their own factories or office blocks if they are going open a business here," says Young.

He says that any foreign investment in South African listed property funds would be through a cross-holding.

"A fund might buy a small stake in a property fund as a yield sweetener."

Last modified on Tuesday, 06 May 2014 17:57

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