There may be opportunities for investors to buy into the relatively cheaper listed property sector following the downturn in unit prices over the past month.
With good property fundamentals making property a viable investment, listed property stocks on average are more than 10% cheaper than they were a month ago.
But investors can still expect some volatility in unit prices.
By May 24, the South African Listed Property Index had come down 8% since May 12 as the property sector, along with other asset classes, weakened following higher interest rates in the US.
The higher US interest rates had reduced tolerance for emerging-market risk. The market recovered at the end of last month, but has since experienced another downturn because of the hike in interest rates in SA.
Mariette Warner, head of property funds at Stanlib Asset Management, said yesterday the South African Listed Property Index had now come down 14% since its high on May 11.
Warner said it was "relatively" much cheaper to invest in listed property but there were still risks in the system because of emerging market issues.
"So, although I do think there is value in listed property there still could be some volatility," she said.
Warner said the interest rate hike by the monetary policy committee was "largely not expected by the listed property sector because inflation remains under control".
"However, we are a global player, and with interest rates moving up in first-world countries and emerging market spread at an all-time low, the relative real interest rate of SA compared with first world countries is looking very tight," she said. The spread referred to the risk premium demanded by foreigners for emerging market assets.
First South Securities property analyst Leon Allison said investors could now buy on the same "positive fundamentals in the property sector as four weeks ago" but at prices about 11% cheaper.
Allison said that this was positive for investment in the listed property sector.
"I agree there is still going to be volatility in the listed property sector just like with general equities in SA and globally."
Catalyst Fund Managers MD Andre Stadler said the key issue now was uncertainty in the market "fuelled by a much more hawkish stance by the US in terms of interest rate increases and the prospects for them".
"With that uncertainty it makes people more comfortable to move to lower-risk investments, the lowest being cash," said Stadler. He said that as soon as investors moved from investing in cash they assumed risk.
Because of this, their return requirements for the risk they were taking in uncertain times was higher. "As a result more prices come down in order to justify a higher prospect of return," he said.
Stadler said that as far as property was concerned, the fundamentals had not changed in the past month. He said the movement in pricing meant an investor buying would be likely to receive a higher income return than he would have a month ago.
"The forward income yield on the sector was sitting at around 7,1% a month ago and today it is around 8,04%.
"For investors who are able to take a longer-term view and stomach the short-term volatility, the yield is more attractive than it was a month ago."
Business Day
Publisher: I-Net Bridge
Source: I-Net Bridge
