Sycom may have to adjust new unit prices

Posted On Friday, 29 August 2003 02:00 Published by Commercial Property News
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Weakness in the listed property sector may not necessarily be bad as it could woo new buyers.


Angelique de Rauville Although the outflow of capital from the listed property sector to equities has softened listed property prices, this is not necessarily bad for the sector because lower prices mean more value for new investors wanting to put their money into larger funds and companies.

 There was speculation in the market on Tuesday that property unit trust heavyweight Sycom Property Fund might have to adjust the offer price of its new units to be issued in its capitalraising exercise, given the recent weakness in the listed property sector.

 Sycom plans to develop its portfolio with acquisitions, investments and refurbishments worth about R500m.

 Angelique de Rauville, MD of listed asset management company Provest, which is part of Investec Bank , said there was a possibility Sycom would have to adjust the price of its new units because of a softening in the property sector and a subsequent flow of capital to general equities.

 She said that there had been a rally in the general market after an 18month slump domestically and abroad.

 There was speculation aplenty in the market on Tuesday that Sycom wanted to price units at R9,30 but would have to lower this to R9,10 because of the move to equities. De Rauville said a that lot of investors were offloading listed property holdings because they believed there was a bigger upside in short-term in equities.

 "We are expecting a total return of 20% between now and June next year in the listed property sector, " she said.

 De Rauville said the share prices of property unit trusts Grayprop and Martprop, and property loan stock company Redefine Income Fund, had all softened over the last two weeks.

 The price of Grayprop units had fallen 20c to R2,72 after trading as high as R3 over the last year, she said.

 "The Grayprop share price at 270c is offering good value," De Rauville said.

 Cape Town-based property economist Erwin Rode had no doubts that if the equity market recovered , it would adversely effect the property market.

 As for the listed property sector, he said it tended to follow long bond rates "quite religiously", and this in turn was influenced by inflation expectations.

 "At times there is a negative correlation between the Johannesburg Securities Exchange SA (JSE) and the listed property sector. I regard a boom on the JSE as more good news than bad news for the listed property sector."

 Rode said investors would not "rush out" of listed property into industrials and financials. He did not agree that the softening of property prices was due to capital flowing into equities.

 "The more reasonable factor is that the listed property sector has outstretched itself. It has reached its peak and consolidation is taking place.

 "What the listed sector needs is a boost in long bond values. But this won't happen unless inflation expectations improve," he said.

 Johannesburg-based property economist Francois Viruly, of Viruly Consulting, said he did not think the listed property sector had reached the end of its run.

 Viruly is expecting a lot of activity in the listed sector in the next few months. He said investors were looking to the equity market and that the listed property sector would come under increasing competition because of this.

Last modified on Saturday, 10 May 2014 10:32

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