Rates rack listed property

Posted On Thursday, 22 May 2008 02:00 Published by eProp Commercial Property News
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Rising interest rates continue to batter the listed property market, with the sector having now lost about 30% of its value since its peak in November.

Keillen NdlovuThis is the biggest loss in value since the listed property sector shed 25% of its value from May to July 2006, when interest rates first started rising.

There appears to be no end in sight to the sector’s woes , with property analysts saying yesterday that listed property price volatility would continue as long as interest rates continued increasing.

Keillen Ndlovu, co-head of Stanlib Property Franchise, said the FTSE/JSE SAPY index stood at 270,48 at midmorning yesterday, a 30% drop from its peak of 385,66 in November.

The sector has been experiencing increased volatility this year because of general global market woes and the local interest rate environment, with the index losing about 24% of its value from November to March.

Ndlovu said the volatility was likely to continue in the short term “until there is clarity on the direction of inflation and interest rates”.

He also highlighted the point that the price drops were not due to large sales but to “relatively small” trades.

He said the higher interest rates would also make property acquisitions far less attractive. “Because of the high interest rates, the gap between physical property yields and funding has increased so it makes it less viable to acquire properties as it would be yield dilutive,” said Ndlovu.

And as was the case when the sector lost value from November to March, property fundamentals remained intact.

Ndlovu said six companies that reported financial results recently delivered a strong 14,6% average growth in distributions. He said fundamentals remained strong, particularly in the office and industrial sectors and to a certain extent in dominant retail centres. “We are forecasting distributions to grow by 11,3% in the next year,” said Ndlovu.

Ian Anderson, an independent property analyst with Re-Connect, said he thought that one area of concern for the listed property sector was the “low level of liquidity”, which meant that marginal sellers were “driving prices to very low levels”.

For example, by 11.30am yesterday, the unit price of listed property loan stock company Premium Properties was down 14,5% with only 2000 units having traded.

Anderson said another aspect contributing to the tale of woe was the wave of xenophobic attacks. The attacks against foreigners in Johannesburg’s townships had received a fair amount of international coverage on Tuesday and was “placing pressure on the rand” and affecting all South African markets.

Gerald Leissner, CEO of ApexHi Properties, the second-biggest listed property company with a market capitalisation of about R9bn, said the drop in values had “nothing to do with the interest rates that property companies are paying” as in many cases these companies had fixed their interest rates.

“It’s the investor’s return on his money as against any other interest-paying instrument,” said Leissner.

He said when interest rates started to decrease, listed property prices would begin to increase.

“Listed property is always interest rate sensitive. In a bear market with high interest rates, property values fall,” said Leissner.

Last modified on Monday, 21 April 2014 17:34

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