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Listings dry up as interest rates rise

Posted On Thursday, 19 July 2007 02:00 Published by eProp Commercial Property News
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Property listings have dried up in the past year in the rising interest rate environment and analysts are not expecting to see any in the foreseeable future

Mariette WarnerIf anything, there could be more delistings because of corporate activity in the sector.

There were about eight new property listings on the JSE’s main board over the past three years during a falling interest-rate cycle.

The last new property listing, where a company holding property assets was brought to market, was Hospitality Property Fund in February last year.

Madison, a listed property asset manager, listed on the JSE in June last year. But Madison, which manages listed property companies ApexHi Properties, Redefine Income Fund and Hyprop Investments, does not hold properties itself.

Mariette Warner, head of property funds at Stanlib, says the last spate of property listings took place in a falling interest rate environment.

“Therefore, the cost of debt could support new listings and also yields on physical properties were higher than now,” says Warner.

In a falling interest-rate environment, the yields on physical properties are higher than the cost of debt, which results in promoters being able to bring new listings to market at attractive yields.

“Now we are in the other leg of the cycle where interest rates have risen but yields on physical property have not yet risen, meaning the higher cost of debt brings the yield down. Therefore, it is not possible to bring new listings to market at competitive yields,” she says.

Warner believes that the future growth in the property market is likely to be in unlisted developments held by private investors because the macro-economic environment supports new property development.

“This will support growth in the listed property sector when the investment and interest rate cycles are again favourable. When the cost of debt comes down and yields on physical property are higher than the cost of debt, that will again support new listings at attractive prices.”

Warner does not expect any meaningful new capital raising in the listed property sector to take place in the next 12 months. But, she says that in the medium term the market will see a “revival of new listings in the property market when the cost of debt and property yields are in the same ratio as the last spate of listings”.

Angelique de Rauville, MD of Investec Listed Property Investments (Ilpi), says Ilpi is expecting, if anything, the listed property sector to reduce its market capitalisation as a result of delistings.

“We believe that the possibility of new property listings is slim in the current market, not necessarily as a result of the current interest rate environment, but more because corporations and institutions are demonstrating no sign of unitising or listing their direct property portfolios,” says De Rauville.

Previously, other property commentators have said that listed property companies and funds looking to grow the size of their property portfolios would have to court corporations and institutions and encourage them to list their property portfolios.

De Rauville says there is significant demand for property as an asset class and that it is proving difficult to convince investors in direct or fixed property to list their property portfolios.

She says this is because “property is a sought after asset class and in high demand globally”.

Macquarie First South property analyst Leon Allison says he is not aware “at this stage” of any definite property listings.

“With corporate activity there is always a possibility that funds could be delisted. There’s been significant corporate activity in the past 12 months in the form of mergers in the sector. There has been consolidation resulting in fewer listed entities,” says Allison.

Last modified on Thursday, 24 April 2014 09:37

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