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Lack of stock ‘a snag, not foreign investors’

Posted On Thursday, 22 November 2007 02:00 Published by
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THE South African commercial property industry need not be too concerned about growing foreign investment in the sector because there is enough local investor interest to keep it buoyant, property economist Francois Viruly says

The more important challenge for South African commercial property players is to find new markets because of the shortage of supply of quality property stock in the local arena, he says.

This gives rise to the question of whether the move to other markets will involve investment in property in developed countries or in developing markets.

One of the themes of the fifth annual property investment conference hosted by commercial property association Sapoa and Investment Property Databank last week was the issue of growing foreign investment in SA’s property sector.

Viruly says what emerged as the conference, which was held from Wednesday to Friday, progressed was that the local commercial property sector needs to find more property stock.

“The South African property sector has the equity from investors. Do we really need that much more equity from overseas investors? What we need is a bigger market and if we can’t grow our economy substantially, the (commercial property) sector will look elsewhere. The question is, do we go to developing countries or the developed world?

“I came to this conference with the idea that we should try and get foreign investors here, and now I am leaving with the question of where we should be going.”

Viruly says South African listed property yields have fallen significantly over the past few years with some listed property funds trading at yields of below 5%.

With foreign listed property companies trading at similar yields, it makes buying interests in these overseas companies more affordable.

“I think the other debate at the conference, and I think the point was made a few times, was should we be looking into other markets locally? Geographically, where do you go?

“Unless this economy can start growing at 7% to 8%, you run the risk of investors saying this game is too small and looking to move on and invest in other markets,” Viruly says.

Catalyst Fund Managers property analyst Paul Duncan says although he agrees investors will start to look further afield for investment opportunities purely because there is value in a lot of overseas markets, offshore markets do not suddenly offer “boundless opportunities without risk”.

“It is not as easy as people think to simply acquire assets in Africa or eastern Europe. Looking at the more developed economies such as the US, Asia and central Europe, these markets are well established with significant players already well established,” Duncan says.

The South African listed property market houses only about 15% to 20% of the country’s commercial property assets as opposed to 80% in Australia, he says.

This implies there is potential for further growth in the listed property sector from local property sources.

“If we could just get to about 40% of SA’s commercial property assets, the listed property sector’s market capitalisation would be approximately R200bn, which is about the same size of the listed property market in Singapore and half the size of Japan’s.”

Publisher: Business Day
Source: Business Day
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