SA Property yields now following global trend

Posted On Wednesday, 19 April 2006 02:00 Published by eProp Commercial Property News
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Increased investment, smaller yields and higher property values auger well for SA economy.

Mike FlaxSouth African property and, in particular, property loan stock companies, are now being swept into the global trend which in recent years has seen yields on commercial property moving down and converging in a lower narrow range – because continued buying has pushed prices up. 

This analysis of the current situation was made recently by Mike Flax, Chief Executive of Spearhead Property Holdings. 

“For several years,” said Flax, “I and others have been telling our overseas colleagues that SA commercial property offers incredible value:  our yields have stood out from the rest of the world by a huge margin.  Now, however, international and local investors are far more alive to the opportunities here and are buying heavily into SA property and SA listed property company stocks.  This is having the same result as has been seen worldwide – prices are up, yields are down.”

Average historical yields of listed SA property companies, said Flax, are in the 5 to 7% range – and Spearhead itself, one of the top twelve performers on the JSE Securities Exchange, is trading at around 6%. 

In the USA, said Flax, due to uncertainties in the general economy, there has been an even wider swing to property with the result that average yields have moved down from 5% at the start of this year to 4,2% in April.  Yields in the UK and Western Europe are also down, to around 5%, while in Germany and Eastern Europe, which two years ago had yields of 7 to 10%, the trend is much the same.

“Everywhere one looks,” said Flax, “one sees the same pattern:  yield hungry investment institutions are sending prices up and yields down.”

The fact that investors are now targeting SA, said Flax, bodes well for the local property sector and for the economy generally.

“The inflow of capital we can expect from now on,” he said, “will lead to further development which, in turn, means more jobs and a decrease in unemployment.  For this reason those misguided government spokesmen who see foreign property involvement as likely to diminish opportunities for South Africans must change their attitude while SARS, if it is going to err, should do so on the side of undertaxing not overtaxing real estate enterprises.

“Right now, the property sector is proving an efficient driver of the economy.  Let us hope that it will be allowed to continue to do this through to and beyond 2010.”


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