Listed property will slow next year.

A’s listed property sector, which has outperformed equities this year, is unlikely to repeat this feat next year but its returns should still beat inflation. In the twelve months to October, the South African property index managed a total return of 19.4%, while SA’s equities could muster only 12.5%. Listed property manager for Old Mutual Investment Group’s MacroSolutions boutique, Evan Robins, said yesterday that a strong bond market enabled listed property to shine over the past three months. The performance of listed property tends to track the performance of bonds because they are both yield- producing investments. “From August until endOctober, the SA Listed Property index provided a 12.4% total return, outperforming general equities in the FTSE/JSE all share, which lost 2%,” he said. “This was largely because the bond market was strong during the period, with yields falling. Properties’ ratings to bonds changed little over this period despite good property results,” Mr Robins said. However, he expected property returns to slow to about 9% next year, still beating inflation. Consumer price inflation was recorded at 5.9% last month. Property companies that have converted to real estate investment trusts (Reits) in SA have to pay out the majority of the income as distributions. The rest of their total return is calculated from share price growth. Grindrod Asset Management chief investment officer Ian Anderson said he was far less optimistic about next year. “Our sectorwide prognosis for 2015 is significantly less buoyant than this time a year ago. The reasons are simple. Distribution growth will slow in 2015 — although it should still average around 8% or 9%, down from 12% this year,” he said. “The tailwinds that supported the price action in a few select counters like Hyprop Investments and Resilient Property Income Fund (Resilient) will not be in place next year and the significant rand weakness in 2013-14 is unlikely to be repeated in 2015,” Mr Anderson said. A stronger rand would affect the distribution growth of South African property companies with large offshore exposure. Nevertheless, Mr Anderson said, there was value in listed property next year — as long as investors were prepared to overlook the high-quality, retail-focused companies, which seemed to be overvalued at existing levels. However, one headwind would be bond yields rising, placing downward pressure on property stock prices, according to Mike van der Westhuizen, an investment analyst at Citadel Wealth Management. “Positive distribution growth should lead to further price growth, but rising bond yields and closing of the property spread — the difference between bond and property yields — which is currently negative, could have a significant negative impact on prices,” Mr van der Westhuizen said. In terms of standout performances among local companies, Resilient was impressive, with its shares gaining about 50% over the past six months, according to Mr Robins.
09 Dec 2014
Author Business Day