South Africa looks set to be the best performing country in the IPD universe again in 2005 with a record all property return of 30.1%, which is double the average return of the four other countries that have already reported this year. This is according to IPD figures released today at two separate functions sponsored by RMB Properties (Pty) Ltd.

Putting this into context, the UK achieved a total return of 19.1% and Canada a total return of 18.7%. At the other end of the scale, Sweden returned 12.7% while the Netherlands achieved a total return of 10.2%.

Commercial direct property in South Africa as an asset class trailed local equities, which soared some 47.3% last year, but outperformed bonds which yielded 9.6% in the same period. At a time when investors are increasingly looking across national borders to generate superior returns, yield compression in South Africa was in the main part spurred by domestic demand rather than international interest. 

Commenting on the results, Stan Garrun, Managing Director IPD South Africa, said:

“This is the third year of stellar performance for physical property in SA, beating bonds and cash in 2005 and closing in on equities over the longer term. Much of the growth is directly attributable to socio–economic normalisation and empowerment putting the sector on a good footing with other investments and is now coming through in superior returns. Local property players have come to the party but the large fund international investors are still absent, although there are signs that foreigners are poised to move in on SA as investment stock increases and they gain a better understanding of our markets”.

South Africa is enjoying a period of great political stability and economic growth. Strong commodity prices and rising business and consumer confidence are buoying Africa's largest economy, now in its longest period of expansion in four decades. South Africa's gross domestic product growth rate for 2005 was reported at 5%, above the 4.3% forecast a year ago, while inflation has declined to 3.4% from a five-year average of 5.1%. Furthermore, Standard and Poor’s, in July of 2005, re-rated South Africa’s local currency A+. That’s one notch higher than the Czech Republic - an in-vogue destination for international institutional property investors.

 “The upgrade reflects South Africa’s strong track record of macroeconomic management and improved prospects of sustainable higher GDP growth rates,” S&P’s credit analyst, Beatriz Merino, said at the time.

Total return was largely boosted by a surge in capital growth from 11.7% in 2004 to 18.1% in 2005, with the compounded income return falling slightly to 10.3% from 10.6%. The two main positive contributors to the improved capital growth were the solid net income growth of 9.2% (2004: 8.4%) and further reduction in the year-end net income yield. As at 31 December 2005, the net income yield was 8.9% as compared to 9.5% in the previous year. Vacancy rates continued to drop during 2005, receding from 7.8% to 5.3% as demand surged on the back of the strengthening economy. This would have been certainly one of the main contributors towards net income growth.

In sector terms, Industrial properties were last year’s star, returning a remarkable 33.1% compared with 24.4% a year earlier. Although there was a marginal decrease in the income return for Industrials, this sector’s capital growth of 18.6% (2004: 9.7%) was helped by improving net income growth and by a fall in the year end net income yield. 

As in previous years, the Retail sector delivered consistent strong performance with the total return increasing from 26.2% in 2004 to 33.0% in 2005. This performance was assisted by the two main segments, Super Regional and Regional Shopping Centres, achieving total returns in excess of 30%. These returns occurred against a background of falling net income yields and strong net income growth.

Offices further cemented their recovery with a total return of 24.5% against 16.6% in 2004. Offices experienced the greatest drop in vacancies, falling by approximately 600 basis points which had a positive impact on the growth in net income.

The Leisure sector is reflected in the published IPD index for the first time this year. Leisure properties (hotels, leisure parks etc) have delivered the strongest sector performance in the IPD database in both the 3 year and the 5 year annualised results. The overall return in 2005 was 25.2%, down from 27.8% in 2004 mainly due to slower capital value growth.

“All property sectors produced good results especially Industrials and Retails, reflecting a growth economy and advantageous interest rate and inflation environments leading to a resurgence of confidence, burgeoning rental and occupancy markets and resultant capital appreciation. IPD now covers 70% plus of the SA investment property market, providing local and foreign investors with an informed basis for assessment of local conditions,” Garrun said.

In terms of geography, retail in and around Cape Town outperformed all the other major markets, returning investors 40.7%, up from 36.5% in 2004. Offices in and around Kwa-Zulu Natal saw the most impressive growth with returns rising to 29.6% from 10.5% over the 12-month period while industrials in and around Gauteng returned 33.8% compared with 22.8% the previous year.

Claire Herd - Press Relations, IPD:  +44 (0)20 7336 9200 This email address is being protected from spambots. You need JavaScript enabled to view it.

Stan Garrun - Managing Director, IPD South Africa:  +27 (0)11 883 4977 This email address is being protected from spambots. You need JavaScript enabled to view it.

Michael Levin – Manager: PAS, IPD South Africa:  +27 (0)11 883 4977 This email address is being protected from spambots. You need JavaScript enabled to view it.

For contributors to the SAPOA/IPD South Africa Property Index and more information please visit www.ipdglobal.com