Listed property sector shows recovery signs

Posted On Wednesday, 30 July 2008 02:00 Published by eProp Commercial Property News
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The South African listed property sector has recovered 14,2% of its value since it bottomed out on July 3.

Andre StadlerProperty analysts point to strengthening bond yields and an improved inflation and interest rate outlook as factors behind the rally in listed property prices. But with uncertainty in global markets, there may yet be more volatility in listed property prices in the short term.

Andre Stadler, MD of Catalyst Fund Managers, said yesterday that there had been significant improvement in listed property pricing due to an “improvement in sentiment around inflation and interest rates”. But short-term volatility could persist. “The global market is still uncertain and this can have a knock-on effect on our market,” Stadler said.

In the long term there was good value in listed property. The financial results being reported this month by listed property companies and funds should also provide the market with insights on the fundamentals of the sector, he said.

Keillen Ndlovu, co-head of Stanlib Property Franchise, said the FTSE/JSE South African listed property (SAPY) index reached 273,35 yesterday from its low of 239,24 on July 3.

Ndlovu said the movement had been driven by the strength of bond yields, supported in turn by the market belief that the peak of the interest rate cycle was now approaching.

“Most of the bad news is in the price already, but the risk lies in inflation surpassing expectations,” he said.

Ndlovu said there was renewed interest in interest rate-sensitive instruments such as property and bonds. The performance of listed property tends to track the performance of bonds because both are income-generating investments.

Mariette Warner, MD of Corovest Property Fund Managers, said the rally in listed property prices was due to strengthening long-bond yields.

But she said the gap between historic listed property yields and long-bond yields had reached zero for the first time since the end of 2005.

“This means that relative to bonds, property has the least favourable rating since the end of 2005. The movement in listed property prices is not due to sentiment, but rather strengthening long-bond yields.”

She said that for the past 2½ years, listed property had traded at yields significantly lower than bonds. This meant listed property prices were more expensive than bonds in terms of yield.

“This sentiment is expected to change with the strong reporting season (from listed property companies and funds) expected over the next two months,” said Warner.

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