Interview with Stan Garrun on Moneyweb

Posted On Monday, 11 April 2005 02:00 Published by eProp Commercial Property News
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Interview with Stan Garrun on Moneyweb.

Property-Housing-ResidentialMONEYWEB: Across to Stan Garrun now, who is the managing director of the IPD Index, the Sapoa IPD Property Index. Came out yesterday, Stan. Just tell us briefly, if you would, what this index measures.

STAN GARRUN: Alec, what it does is it measures the return to investors of direct property holdings in South Africa. The way it works is we collect the data from the major property owners, listed and unlisted companies, and the aggregation of that information provides an index of investment performance in South Africa.

MONEYWEB: These clearly would be the big property owners. Does it relate much to the way that the JSE property unit trust or loan stock shares have been performing?

STAN GARRUN: There is quite a difference, Alec, but what we actually measure is the underlying property performance. The listed property companies are in fact part of our database, and in the IPD database we actually cover about 80% of market capitalisation on the JSE.

MONEYWEB: Why do you do this?

STAN GARRUN: Well, we do it so that funds can benchmark their performance at a very detailed level to their peers, first of all, and then also to measure the performance of the asset class against other assets.

MONEYWEB: It’s called the Sapoa IPD Property Index. You’re the IPD. Sapoa – South African Property Owners Association – do they actually pay for it?

STAN GARRUN: No, the participants pay for the product. Our business is in fact a detailed confidential portfolio analysis service that we provide to those investors and owners, in which we benchmark their properties and their performance, and sort of assess the level of their asset management, their fund management. And we actually give it to them, and they pay us for that. Sapoa is really a partner that has been involved with us for a number of years, and in fact was instrumental in setting up this process in South Africa some nine years ago.

MONEYWEB: Well, just about anybody who has anything to do with property – and that’s most people who own homes – would know that the market has boomed. Even commercial properties have followed suit – 23,5% in 2004, up from 15% the year before. So it’s a big acceleration. Is this the highest that you have seen since you started the index?

STAN GARRUN: Alec, we’ve been measuring this for 10 years in South Africa. It's certainly the highest by a margin. I think the next highest we hit was in 1997, if I’m not mistaken, and that was about 15%. We’ve only been measuring property performance in South Africa for 10 years. But I would hazard a guess to say that this is in fact the best it’s been for probably quite a long time.

MONEYWEB: How does it compare with residential property?

STAN GARRUN: Well, it’s not quite the same, not quite at that level. But it is certainly getting close.

MONEYWEB: Are you expecting that the momentum is still there, and you could see another good year in 2005?

STAN GARRUN: I think so. We’ve looked at some of the fundamental driving forces and the demand trends, and it seems to indicate that this will continue. It’s actually been the second sparkling year we’ve had, but I think there’s still a lot of legs in the market.

MONEYWEB: That was Stan Garrun, managing director of the IPD Index. How do you like that, Wayne, 23.5% return for property?

WAYNE McCURRIE: It’s been fantastic. Certainly last year the listed property unit trusts were way cheaper than the bond market. In other words, you can compare the yield on bonds to property, because essentially they are almost exactly the same thing – more or less. And up until the beginning of this year, I think, the properties were always at a higher yield, i.e. they were a bit cheaper, whereas now the two are ad idem. So there has been a big catch-up in the listed property, or the non-residential market.

MONEYWEB: But doesn’t that tell you that maybe it’s gone far enough?

WAYNE McCURRIE: I certainly do think so. I don’t think bonds or property offer value at this particular price.

MONEYWEB: What do you think, Tendai?

TENDAI MUSIKAVANHU: I agree with Wayne. I think the dark horse is going to be GDP growth. The growth in the economy – hopefully we begin to see a turnaround in jobs. Hopefully we begin to see trends in terms of a grey middle class, and that could change all of this.

MONEYWEB: Commercial property?

TENDAI MUSIKAVANHU: Well, residential in particular. But commercial? GDP yes, again. But in terms of looking forward, I must admit I’m not excited on the macro trends in terms of property.

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