Axing exchange controls could boost property

Posted On Monday, 04 October 2004 02:00 Published by eProp Commercial Property News
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Secondary listings on JSE may follow if exchange controls are relaxed

JSEAs speculation mounts that Finance Minister Trevor Manual is likely to further relax exchange controls in his medium-term budget policy statement on October 26, property commentators say such a move would have a positive effect on the property market.

Some take the view that we may see the abolition of all exchange controls in the not-so-distant future which could in time pave the way for secondary listings on the JSE Securities Exchange SA by foreign property listings.

Colin Young, fund manager of Old Mutual's South African-listed property funds, said the relaxation or abolition of exchange controls would have a positive effect on property because it would lead to an environment of even lower inflation. Young said local inflation would follow the trend in Europe of low inflation after a relaxation or abolition of exchange controls.

Import prices would come down as tariffs disappeared, he said.

Young said in the long run it would be positive for the country because it would force local competitiveness and SA would reach a structurally low inflation environment quicker, which was positive. In a very low inflation environment interest rates would follow the same trend downwards by implication, he said.

He said this would immediately benefit the listed property sector and over time the fixed property sector as capitalisation rates came down and prices went up.

Young said Manuel had approved dual secondary listings on the JSE by foreign companies and if SA's inflation and interest rates came down and matched a country like Australia, for instance, then a listed property trust like Westfield in Australia would become attractive for local investors.

UK-based Liberty International has a dual listing on the London Stock Exchange and the JSE and has proven to be an attractive, stable investment for local investors.

But Young said the South African listed property sector would come under pressure to reduce the annual escalation of their rentals so they would fall in line with world norms.

Mariette Warner, fund manager of the Stanlib Property Income Fund, said low inflation would be good for listed property and the property market in general.

She said listed property would react more quickly to a low-inflation environment because it would follow trends in the bond market.

Analysts say the performance of listed property tends to track the bond market because they are both income-generating investments.

Property consultant Niki Vontas said the removal of exchange controls would cause a temporary tremor in the commercial property sector but this would level off.

Vontas said it was likely exchange controls would be abolished in the short term because SA was accepted as a stable country with a successful economy. He said eventually foreign investors would become more active players in the commercial property sector in SA.

Last modified on Thursday, 15 May 2014 13:43

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