Property expert discredits popular view on high gearing.

Posted On Friday, 11 October 2002 02:00 Published by eProp Commercial Property News
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Listed-property expert and head of Catalyst Gauteng operations Harry Boonzaaier has again discredited the popular view that high gearing was good for shareholder value in property investment vehicles.

JSEAddressing the Catalyst property trends conference held in Johannesburg yesterday, Boonzaaier could have unsettled a number of players in the listed property sector who run dangerously high gearing levels. The listed property sector has swelled in market capitalisation from about R7,1bn in 2000 to R13,6bn, mainly a result of acquisitions realised through gearing.

Reiterating what he said when interest rates were low and when gearing was fashionable for property schemes, Boonzaaier, said: 'Interest rates risk was very real in this market.'

He said while high gearing could boost earnings during times of increasing rental income, it could have disastrous effects in times of negative income growth. He said gearing made it easy for a property company to wipe out its earnings. He said benefits received from gearing would be offset by the accompanying higher risk levels.

Boonzaaier said the weak property market fundamentals made management skills an important yardstick in the assessment of listed property companies. He said pressure on rental levels as a result of overdevelopment, sluggish economic growth, and an increase in interest rates were factors behind a negative rerating of property counters on the JSE Securities Exchange SA.

Catalyst Securities MD Andre Stadler said property had defensive qualities compared to other investment asset classes. He said that these defensive qualities would ensure that property continued to attract investors despite a volatile environment characterised by high interest rates.

Broll chairman Jonathan Broll said that in the light of equities markets bubble, property should reclaim its position of making up 15% of total investment portfolios.

Last modified on Wednesday, 23 April 2014 12:39

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