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Property recovers but volatility remains

Posted On Thursday, 16 November 2006 02:00 Published by eProp Commercial Property News
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The South African listed property sector has regained most of the losses that occurred in the second quarter of this year. But analysts do not rule out further price volatility in the sector in the short term as uncertainty around interest rates and inflation figures persists.

Andre StadlerAccording to Catalyst Fund Managers, the listed property index recorded a total return of 9,91% last month. The year-to-date total return was 21,8%. Andre Stadler, MD of Catalyst Fund Managers, said yesterday the closing price of the index on October 31 was 449,38, a recovery close to the price of the index on May 10, when the price was 465,68.

The listed property sector, which experienced boom conditions over the past few years, peaked in early May and then started losing value — first as a result of interest rate hikes in the US and general emerging market jitters and then as a result of a 50-basis-point interest rate hike in SA. There was a large sell-off by investors but the market has recovered since then on the back of some stellar financial results coming out of the sector.

Stadler said the historic yield on the listed property index was now 88 basis points higher than on May 10 because of strong income distribution growth over the period. “The direction of interest rates still remains uncertain. People appear to be less concerned but there is still uncertainty and there could still be volatility in the short term. In the long term, solid fundamentals and growth from the (listed property) sector should provide support for long-term total returns,” said Stadler.

Mariette Warner, head of property funds at Stanlib, said there was always uncertainty and volatility at the beginning of a rising interest rate cycle. “The uncertainty will remain until economic data reflects the intention behind the hiking of interest rates, such as a slowdown in consumer spending, a slowdown in passenger vehicle sales or slowing growth in house prices,” said Warner.

She said the “intentions behind the interest rate hikes” were now starting to materialise. This should reduce uncertainty regarding the length and extent of the rising interest rate cycle, said Warner. Property company earnings continued to surprise “on the upside”. This had largely protected property prices during the rising interest rate environment.

“We expect strong fundamentals to continue for some time. As long as GDP (gross domestic product) growth remains around 4%, the outlook for commercial and industrial property remains positive,” said Warner.

Angelique de Rauville, MD of Investec Listed Property Investments, said the group was also expecting some short-term volatility in line with expected interest rate increases, but that long-term property fundamentals were strong and “expected to prevail” for the next three to five years. “This will ultimately result in the continued outperformance of listed property over cash and bonds over time,” said De Rauville.

Her company was “bullish” about all the commercial property market’s sectors but De Rauville said she had some reservations about retail property. “We are keeping a close eye on some of the extensive retail developments that are going on and the possible negative effect of overdevelopment in some areas, particularly if consumer spending starts to taper off in line with the hikes in interest rates.”

Catalyst Fund Managers said the retail property sector had been “the most resilient and best performer over the long term”. “However, with new supply being introduced and a potential slowdown in consumer spending, growth from retail is expected to moderate off its current high base,” said Stadler

Industrial property had “performed very well” over the past two to three years. “There is a shortage of suitable zoned land and industrial users are demanding higher building specifications, eaves height and greater turning circles,” said Stadler. Offices had been the worst performer of the three property sectors over the past few years.

Last modified on Monday, 28 April 2014 12:56

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