SA's listed property sector brims with optimism

Posted On Wednesday, 12 November 2003 02:00 Published by eProp Commercial Property News
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But an improving US growth rate could easily see an outflow of capital from the South African market

Angelique de RauvilleALTHOUGH prime lending rates in the UK and Australia have risen, interest rates will continue to remain low in SA, bucking this trend and benefiting the listed property sector with share prices expected to strengthen in the next six months.

Listed asset management company Provest, which is part of Investec Bank and does monthly reports on the listed property sector, says this will be driven by domestic political factors, with national elections taking place in April next year.

Angelique de Rauville, MD of Provest, believes the low interest rate scenario will continue because this will promote a strong economy, which is advantageous to the ruling party in the run-up to the election.

While some commentators believe there could still be an upside in the listed property sector, they think this would be driven by international and domestic economic factors, rather than the political environment.

De Rauville says investor demand for listed property stocks has levelled off in the past few days given the global market and the increase in prime lending rates by 25 basis points in Australia and England. She said the interest rate hike overseas would imply a weakness in global bond markets. When international interest rates increased, global bond yield rates increased, she said. In other words, global bond prices decreased.

De Rauville says the South African bond market generally tracks the global bond markets and there had been a weakening in their price in the past few days.

"There is a correlation between listed property yields and South African bonds, given that they are both interest income-generating investments. On that basis, investor demand for listed property stocks has levelled off over the last few days."

De Rauville says that on a sixmonths view, Provest believes there is an upside of between 3% and 10% in the listed property sector.

But, John Rainier, MD of listed property unit trust conglomerate Grayprop, does not agree that there has been a weakening in listed property share prices in the past few days.

Rainier said 13-million Grayprop units traded at a "very good price" yesterday. "The units are trading at a very good value compared with bonds," says Rainier.

However, Rainier says he believes that movement in the listed property sector will be influenced by economic factors, not politics.

Jonathan Smith, director of property strategists Courtwell Consulting, says that in the next six months, the listing of new funds and the growth in existing funds will continue to make the listed property sector attractive to investors. "We can expect stable returns from this sector, which has proved itself to be able to withstand extensive market shocks. I don't think it is weakening," Smith says.

He says SA will continue to enjoy lower interest rates and this boded well for the equity value of investments. However, he believed international and domestic economics would be the driving factors.

"Although there could be politically originated market shocks, this is unlikely and we should rather be focusing on international and national economic factors when projecting how the listed property sector will perform," he says.

"For example, an international consideration is the growing tension in the Middle East and the possibility that the US will withdraw from a very unstable Iraq."

Smith says another international consideration is the improving growth rate in the US, which could see an outflow of capital from South African markets back to the US.

"Approximately R22bn has flowed into our capital markets in the past quarter, but this is easily withdrawable," says Smith.

Brian Azizollahoff, CE of property loan stock company Redefine Income Fund, believes the listed sector would continue to do well in the next six months, saying at least one more interest rate cut is expected and it would have a positive effect on the sector. "There could be a rerating of the market by investors," he said.

Last modified on Friday, 09 May 2014 14:40

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