Listed property's lustre returning

Posted On Tuesday, 29 August 2006 02:00 Published by eProp Commercial Property News
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After a torrid three months, the listed property sector has bounced back, with some commentators saying it is a more attractive buy than fixed property.

Norbert Sasse

The sector, which experienced boom conditions over the past few years, peaked in early May and then started losing value - first as a result of interest rate hikes in the US and general emerging market jitters and then as a result of a 50-basis point interest rate hike in SA.

There was a large selloff by investors as the market hit the panic button, but it appears that investors are now buying listed units again. Over the past few weeks, the sector recovered about 15%, despite a further 50- basis point interest rate hike during that period.

Norbert Sasse, CEO of Growthpoint Properties, the largest property company on the JSE, says that in early May, before the sell-off, listed property yields on the best-rated listed property counters were trading 6,5%-7% on a forward-yield basis.

Sasse says at that time fixed property was more attractive since investors could buy fixed property on a forward yield of 8,5%-9,5%.

"Then we had the big sell-off in the listed property sector, where it lost between 25% and 30% of its value, which meant that overnight the forward yields on listed property increased to over 9,5%," he says.

When listed property yields rise, the price of listed property units drops.

Sasse says an advantage listed property always has over fixed property is its liquidity.

He says that owners of fixed property wanting to sell are looking at selling at forward yields of 8,5%-9%.

"You can now, all of a sudden, buy listed property at 9% to 9,5%, which is much better value than buying direct property," says Sasse.

He believes more people will start buying listed property and that there will be a reduction in demand for fixed property.

"Therefore the sellers of direct property will have to reduce their price expectations, which means that the yields on direct property will increase," says Sasse.

He says that the listed property sector has already regained 10%-15%.

Andre Stadler, MD of Catalyst Fund Managers, says that previously the unit prices of listed property companies traded at a high premium to the companies' underlying net asset value.

"However, now listed property companies are trading at prices closer to their net asset value, so at the moment listed property is probably a more attractive buy than fixed property," says Stadler.

Angelique de Rauville, MD of Investec Listed Property Investments, says that over the past three weeks there has been only a single trading day where the listed property sector has not posted a gain.

"The gap between physical property yields and listed property yields is closing, because the listed property sector is re-rating and not because the sellers of physical property are adjusting asking prices," says De Rauville.

She says Investec Listed Property Investments is not expecting capitalisation rates or the yields on fixed property to "soften".

"They don't need to because the listed property sector has started to re-rate again. It's six of one and half a dozen of the other - because the listed property sector has re-rated, yields on listed property stocks are quite comparable with the yields on fixed properties," she says.

Ndabe Mkhize, investment analyst at Coronation Fund Managers, says that about two weeks ago, the listed property sector "clearly offered better value" than fixed property.

"The average clean yields were between 9% and 9,5%. The prices have recovered about 15% and the yields I am expecting are about 8,5%-8,6%.

"I believe the jury is now out on which one is cheaper - fixed or direct property," says Mkhize.

He says the listed property sector has the added benefit of liquidity and that he expects it to trade "at a slightly lower yield than direct property".

Last modified on Tuesday, 06 May 2014 09:19

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