‘Worst is over’ for listed property

Posted On Wednesday, 20 August 2008 02:00 Published by eProp Commercial Property News
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The worst could be over for the listed property sector, which has experienced severe volatility this year, provided there are no nasty interest rate surprises in the next quarter.

Keillen NdlovuThe sector, which lost more than 30% of its value from November last year to June, with a substantial recovery last month, can now look forward to some stability, say analysts.

Mariette Warner, MD of Corovest Property Fund Managers, said yesterday that the decision by the monetary policy committee last week not to hike interest rates would “bring stability to the sector”.

“The uncertainty regarding the top of the interest rate cycle is diminished,” she said.

This would be underpinned by “very good earnings results” during the current financial reporting season from the listed property sector, she said.

Warner was expecting 10% distribution growth on average from funds with traditional portfolios. The more entrepreneurial funds could be expected to deliver 12%-15% distribution growth on average.

Warner said distribution growth was unlikely to be sustainable because trading conditions were difficult.

She said even though there would be less volatility in the sector, transactions would remain complicated because of the high cost of borrowings.

Although the sector experienced a price rally last month with a 25% recovery from the lows in June, Warner said it was unlikely there would be a further rally in the short term and there would more likely be a period of stability.

After the announcement last week that interest rates would remain unchanged, the South African listed property index gained 1%. It has since lost most of this gain.

“That indicates the decision to keep rates steady was fully priced in by the market,” Warner said.

“The worst is over, provided there are no surprise rate hikes next quarter,” she said.

Keillen Ndlovu, co-head of Stanlib Property Franchise, agreed that SA was more or less at the peak of the interest rate cycle. He said this boded well on the funding side of property companies because new developments and acquisitions had slowed down due to higher borrowing costs.

As far as distribution growth was concerned, Ndlovu said that he still expected double digit growth for the “next year or two years”.

“But it will slow down off a high base.”

However, Ndlovu said the risk remained on the retail property side, where trading conditions had been “tough”.

“Surprisingly, we haven’t seen any major defaults of tenants,” he said.

Property economist Francois Viruly of Viruly Consulting said volatility in the sector was less attributable to the fundamentals of the market and more to the performance of the financial market, the macroeconomy and interest rates.

“I still see low vacancy rates, with prospects for rentals to rise in real terms,” Viruly said.

Last modified on Monday, 21 April 2014 11:57

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