South Africa investors are making money on commercial real estate than their global counterparts

Posted On Thursday, 03 April 2014 13:03 Published by
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South African investors are making more money on commercial real estate than any of their offshore counterparts.

Stan Garrun

The latest figures from UK-based researcher group Investment Property Databank (IPD) has revealed.

Total returns on South African retail‚ office and industrial buildings reached a six-year high of 15.3% last year‚ placing South Africa as the most lucrative commercial property investment destination among 16 countries that have so far released results for last year.

IPD tracks the income and capital growth performance (in local currency) of directly held commercial property in about 30 countries across the globe.

The IPD SA annual property index‚ which measures 60% of professionally managed investment property in SA worth R213bn‚ comfortably pipped the US's return of 11.4%.

The US was the second-best performing real estate market in the world last year.

Not one of the other 14 countries that have reported results for this year returned more than 8%. So far‚ the Netherlands is the worst-performing commercial property market globally‚ with a return of only 0.5%.

Analysts say the fact that South Africa's commercial property sector has emerged from the global downturn in better shape than many others is a testament to the asset management skills of local property owners.

Further‚ continuing stock market volatility has increased demand for South African commercial property as an asset class‚ particularly among income-chasing investors.

IPD figures showed that South African commercial property offered an income return of 8.2% last year‚ compared with yields of less than 6% in most other countries the research group tracked.

Stan Garrun‚ head of IPD SA‚ said landlords actively sweating their assets buoyed the local property sector‚ providing investors with consistently robust and diversified returns.

He said South Africa's 15.3% return was impressive‚ particularly given the country's constrained employment growth and lacklustre consumer spending.

Mr Garrun said property funds aggressively bulking up their portfolios in a historically low interest rate environment had supported returns. "The low cost of capital encouraged investment trading activity‚ which has supported property values."

At an individual segment level‚ light manufacturing/low grade industrial property was the best money spinner for local investors last year‚ with a stellar 20.9% return last year. Large malls‚ so-called super-regional shopping centres that typically exceed 100‚000m²‚ delivered a robust 19.4%.

In contrast‚ inner city offices trailed with a 12.7% return, while South Africa's listed real estate market delivered a more muted performance than directly held commercial property.

Thanks to weaker bond yields last year, the JSE's property index still notched up a return of 8.39% (in rand) last year.

This was ahead of investment bank UBS's global real estate investors index of 1.77% (in dollars).

But the prices of local property stocks have come under increased pressure lately‚ with the index recording a negative return of -2.81% for the year to date (January and February).

That lags behind the 6.99% dollar return the UBS global real estate investors index delivered.

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