Listed property - is the party over?

Posted On Monday, 13 December 2004 02:00 Published by eProp Commercial Property News
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Investors in the listed property sector can expect lower, more stable total returns of 13% in 2005 - says First South Securities property analyst Leon Allison

Leon AllisonLINDSAY WILLIAMS: Does that mean that it is all over? We must sell our shares? Or, are we just going to cool down a bit?

LEON ALLISON: I think it is just going to cool down a bit. The high returns of recent years we are unlikely to see in the next 12 months, but still - solid returns. I am still looking for 13% over the next 12 months, mostly income yield, and I think that should still be good enough to outperform cash and bonds.

LINDSAY WILLIAMS: It is not a bad run, though? I have just been looking at a graph of the sector - it has been going up for five or six years now. It must be one of the best performers of the JSE in that period?

LEON ALLISON: Yes. Listed property has probably been the best performing asset class over the last five or six years. Like you say, it has been a very good run.

LINDSAY WILLIAMS: That was taking a number of different interest rate cycles. From the reaction to the unchanged stance by the Reserve Bank, we seem to be plateauing now on interest rates - some people even saying that towards the end of 2005 we might even tick up. Is that one of the reasons you think things are going to cool down?

LEON ALLISON: Yes. Our house view is that interest rates are likely to remain at current levels for the next year - so we aren’t likely to see further price gains from listed property as a result of declining interest rates, even though it seems like the bond market may be pricing in a bit more of an interest rate drop. I would say we are looking for a more stable interest rate environment, and that should be good, in general, for listed property - but not as good as the significantly declining interest rate environment we have enjoyed in the past couple of years.

LINDSAY WILLIAMS: What about empowerment? That seems to be a feature that is going to figure quite strongly in the sector next year. Any companies that you know of, that are starting to steal a march on the others in that regard?

LEON ALLISON: I think the property charter is supposed to be finalized by June 2005. Negotiations are currently on the go, so I think there is no real certainty what the final structure, or charter, is going to look like. I think as we get nearer to that date, the different companies would be positioning themselves for that.

LINDSAY WILLIAMS: Let’s look at the portfolio for 2005 - let’s say that we weren’t happy with your projected 13%. One has to offload a few shares, and go into other sectors - which of the blue-chip listed property shares would you hold?

LEON ALLISON: We have got a longer-term view. I would say your core holdings, your longer-term strategic holdings should be blue-chips - the likes of Growthpoint, Grayprop, Sycom and even Hyprop. Those would tend to be your long-term holdings. Then you are taking a shorter-term relative view - where there is value. You would look at the likes of industrial stocks like Martprop and Pangbourne and office stock like Redefine... 

Last modified on Wednesday, 14 May 2014 11:20

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