Listed property - repo rate

Posted On Wednesday, 21 June 2006 02:00 Published by eProp Commercial Property News
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Classic Business Day gets Angelique de Rauville from Investec on the line - to find out what effect the SA Reserve Bank’s 0.5% interest rate hike is having on the listed property sector

Angelique de RauvilleLINDSAY WILLIAMS: Angelique, South Africa’s repo rate went from 7% to 7.5% - has it had a bad effect on listed property?

ANGELIQUE DE RAUVILLE: It has, and the listed property sector has also been subject to the negative volatility of the JSE since the beginning of May. Today was another bad day for the listed property sector. While the JSE moved into positive territory, and closed there this afternoon, the listed property sector wasn’t afforded the same luxury - and we closed down 1.7% on the day.

LINDSAY WILLIAMS: So that’s 1.7% down - with the market up about 1%! Do you think that’s a trend that’s going to become embedded as people actually get used to the fact that interest rates are now not going to go down any more - or that’s the perceived situation anyway?

ANGELIQUE DE RAUVILLE: Your previous guest alluded to the fact that the market is wanting some clarity - the same applies to interest rates. We are looking for clarity not only in the local context, but also in the global context.

LINDSAY WILLIAMS: What does Investec think about interest rates?

ANGELIQUE DE RAUVILLE: We’ve seen this 50 basis points increase in the SA repo rate - that this is likely to be retained, at least for the next 12 months - but we still need some direction from the SA Reserve Bank, and the US Federal Reserve…

LINDSAY WILLIAMS: So you’re fairly confident that perhaps this was a pre-emptive move, and that maybe we won’t see any further rises in 2006. Let’s hope so! I was looking at a graph the other day - it looked as though the listed property sector had actually outperformed the market. There was a lot of noise with the major indices, primarily because of derivatives activity. I think for every one rand down in value on the overall index we were only down about 0.5% on properties - that’s quite a good sign isn’t it?

ANGELIQUE DE RAUVILLE: Yes, that’s the research that’s been coming out of Investec Listed Property Investments - since the beginning of the year for every 1% loss in terms of a general equities portfolio, a listed property portfolio would have lost 0.44% - so those are the figures. Having said that, the all share index has shown signs of recovery since that research was distributed a week or so ago - and the listed property sector continues to come under pressure in line with the bond market.

LINDSAY WILLIAMS: Do you think there are lurking buyers - people that have missed the property boom on the JSE, and with the supply and demand situation with a limited amount of property stocks available on the JSE - that if we fell too far there’s always going to be someone willing to snap it up?

ANGELIQUE DE RAUVILLE: In terms of our business we’re starting to see some inflows from courageous private investors saying that it can’t go much lower than these levels - we haven’t quite got the confidence yet that we’ve seen the bottom of the market, but we’ve got to be fairly close to it.

LINDSAY WILLIAMS: The word “courageous” suggests they are being slightly reckless - would you be advising your clients now that 50 basis points was a shock so there are going to be people dumping stock, but on the other hand that’s the end of it so they can pick up some bargains?

ANGELIQUE DE RAUVILLE: We still need clarity that this is the end of it - we think there might be some further downside to be had from the list property sector before we reach the bottom. So perhaps there is an opportunity to pick up stock at lower levels than what is currently being offered in the market today.

LINDSAY WILLIAMS: So in general terms it’s buy the dips - is there any particular sector you like? Industrial, commercial, retail - maybe the retail sector is now the one to ignore in favour of the other two - what do you think?

ANGELIQUE DE RAUVILLE: We are sticking fairly close to the retailers - they aren’t expecting the 50 basis point hike in the repo rate to have any significant adverse effect on consumer spending - so we think retail is alright. With the weaker rand industrials could even benefit - so from a property fundamentals point of view, nothing has changed on the back of this 50 basis points increase. We are still very bullish on industrial - with low vacancies driving demand for space - and retail is still fine, our third choice being office. 



Last modified on Tuesday, 06 May 2014 11:04

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