Budget pension relief rubs off on listed property

Posted On Thursday, 01 March 2007 02:00 Published by eProp Commercial Property News
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Although Finance Minister Trevor Manuel did not specifically include any property-friendly items in his budget speech last week, his scrapping of taxation on interest for pension funds is expected to be a major boost for the listed property sector.

Norbert SassePension funds were previously taxed at 9% but will now pay no tax on the distributions if they were invested in the listed property sector. Property pundits are expecting a surge in unit prices as pension funds, which have always been large investors in listed property, increase their holdings.

Norbert Sasse, CEO of Growthpoint Properties, which has a market capitalisation of more than R15bn and property assets worth more than R20bn, says listed property prices increased across the board leading up to the budget speech, as well as afterwards.

Growthpoint, as the largest and one of the most liquid property stocks, is usually the first company to start showing listed property sector trends. This was illustrated in May last year when the listed property sector lost 25% of its value because of US interest rate hikes and emerging market jitters. Growthpoint was the first company to suffer the knock.

Now it seems the reverse is holding true with Growthpoint being one of the first to show an increase in value. Sasse says the effect of the budget speech could be seen in Growthpoint’s unit price movement. It closed at R13,80 the day before Manuel delivered his budget speech. After the budget speech it closed at R14,32 and on Monday it traded as high as R15,82.

Craig Hutchison, CEO of listed property loan stock company Pangbourne Properties, says that following Manuel’s budget speech, Pangbourne’s unit price rose from R15 to trade about R16. “We saw it as a very positive budget for the listed property sector,” he says.

Hutchison says the market is going to see even more investment in the listed property sector from pension funds. “There is also a lot of international interest in the South African property market and that is further going to compress property yields.”

Investec Listed Property Investments MD Angelique de Rauville says the group believes the “the budget was both directly and indirectly favourable for the listed property sector”. “We do have concerns around the incredibly strong start that listed property has got off to in 2007, already having done 15% total returns since January 1 until February 23,” says De Rauville.

Investec Listed Property Investments has perhaps been too conservative “on its earnings growth assumptions of 10% to 12% this year” for the listed property sector. De Rauville says this could be closer to 12%-15% based on some of the more recent company results declared.

De Rauville says pension and provident funds still believe that listed property forms a small percentage of the overall JSE and until its market capitalisation increases, they will not make significant reallocations of assets to the listed property sector. There would be a limited and phased increase in these funds’ allocation to listed property, she said.

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