Property's still for the patient

Posted On Monday, 18 June 2007 02:00 Published by
Rate this item
(0 votes)
It's not just consumers with large amounts of debt who are feeling the pinch of rising interest rates - it's not great news for some kinds of investments either
17 June 2007

By Chris Needham

For the past two or three years, listed property - including shopping malls and industrial space - has been a fantastic place for investors' money, delivering returns that have often outpaced the rest of the local equity market.

But the sector, made up of Property Unit Trusts and Property Loan Stocks, has fallen in the past few weeks, and opinion is divided on whether this is bad news or more of a buying opportunity.

Stanlib, the unit trust company, announced recently that it had reduced its exposure to listed property to protect the gains made in recent years.

"At this stage we view the pullback as an overdue correction in the big bull market that has been under way for the past five years," Paul Hansen, director of retail investing at Stanlib, wrote in the Stanlib Weekly Focus.

"There is no reason to believe that the major uptrend is over because of the very strong fundamentals of declining vacancy rates and rising rentals that still exist," he wrote.

"Hopefully inflation and interest rates will be peaking soon at what will still be very reasonable levels."

The Association of Property Unit Trusts said that if this month's 50 basis point rise in interest rates caused a pullback in listed property prices - which it does seem to have done - it would represent a buying opportunity.

Len van Niekerk, head of quoted property at Old Mutual Investment Group SA (Omigsa), reminded investors in listed property to be patient because it is an income-providing asset class.

"Listed property is a longer-term asset class and patient investors will benefit from sustainable growth in distributions over the next several years - which will translate into capital gains over time," he said.

The sector can experience large moves in prices, meaning that returns can be very erratic in the short-term - and that this could scare "some investors into making rash sell decisions", he added.

However, he said, "the income streams are very secure and growing, hence the need for investors to take a longer-term view".

Van Niekerk said that the greatest risk to the property sector was a sustained rise in bond yields.

"This risk would be intensified if materially higher inflation expectations manifested for an extended period."

However, if the bond market overreacted, this could provide a buying opportunity, Van Niekerk said.

"The property sector continues to show strong distribution growth (in the region of 12% a year) underpinned by supply and demand dynamics that increasingly favour landlords.

"Strong economic growth has underpinned the demand for space, while rising building costs and increasingly limited supply of zoned serviced land are supporting higher rentals across retail, office and industrial properties."

Business Times

Publisher: I-Net Bridge
Source: I-Net Bridge

Most Popular

Should you rent or buy your business premises?

Jun 23, 2022
Malusi Mthuli_FNB
This is a question that most business owners will face at some point in their journey.…

April 2022 Hotel Accommodation Income Statistics continue to show a very weak picture compared to pre-lockdown times.

Jun 23, 2022
Hotels Monthly Income 2022
The StatsSA release of April 2022 preliminary monthly tourism statistics show the Hotel…

South Africa’s inflation exceptionalism: can it last?

Jun 23, 2022
Carmen Nel
South Africa is often seen as a high-beta play, be it regarding financial market risk…

Hyprop continues to reduce debt and reposition its portfolios in SA and EE

Jun 30, 2022
Skopje City Mall Playground
Hyprop, which manages dominant retail centres in mixed-use precincts in key economic…

Vaal Mall rolls up its sleeves for pothole repairs

Jun 30, 2022
Vaal Mall crew busy repairing the various potholes making easier access to the Centre.
Vaal Mall is showing their commitment towards their community by stepping up to repair…

Please publish modules in offcanvas position.