Listed property sector 'back on even keel' after recent plunge

Posted On Monday, 29 May 2006 02:00 Published by eProp Commercial Property News
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The South African listed property sector has stabilised after its unit prices plunged in value following the interest rate hike in the US

Andre StadlerAnalysts are confident the listed property market will recover in time because property fundamentals and distribution growth are strong.

The South African Listed Property Index has come down 8% since May 12 as the property sector, along with other asset classes, weakened after higher interest rates in the US.

The rates had caused lower tolerance for emerging market risk, so countries such as SA suffered.

Mariette Warner, head of property funds at Stanlib Asset Management, said last Thursday that listed property had "levelled off".

"After the recovery on Tuesday, the all-share index has pulled back again but not as low as it was on Monday," said Warner.

She said listed property had been treated by the market as an industrial or financial share during the emerging market sell-off, losing a similar percentage to what the all share index gave up.

"The listed sector has stabilised at 8% off its value at May 12."

Warner said it was unusual for listed property to be treated the same way as equities because its longer-term trend was to follow long-bond yields.

The performance of listed property tends to track the performance of long bonds because they are both income-generating investments.

Warner said listed property's downward movement was therefore driven by "sentiment and the equity market" - and not by property market fundamentals or the fixed-income market.

She said the yield on long bonds had only increased 12 basis points since May 12, while cash yields had increased only 20 basis points.

When yields go up, share prices go down.

Listed property's yield had increased 61 basis points since May 12.

"That translates into the 8% capital loss. Therefore there is a strong fundamental case for the listed property market being oversold and therefore a recovery is expected," she said.

Andre Stadler, MD of Catalyst Fund Managers, said "nothing has changed on the property fundamentals side".

"The fundamentals remain strong, distribution growth forecasts remain strong.

"Heightened global risk aversion has affected our markets and property is not immune to that, but in the long term the fundamentals should come through and be reflected in return.

"From our perspective, this reduction in prices has brought more value back into the sector."

 

Last modified on Tuesday, 06 May 2014 13:06

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