Local still lekker

Posted On Monday, 07 January 2008 02:00 Published by eProp Commercial Property News
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Despite the nine interest rate increases since mid-2006, South African property investors are sitting rather pretty compared to their American, British and European counterparts.

Andre StadlerA number of offshore property markets have taken a knock in 2007 - both residential and commercial - on the back of ongoing mortgage lending woes.
 
Listed property markets in the United States and Europe have been particularly hard hit as real estate investors continue to bolt out of those markets. Interestingly, SA has bucked the trend, with JSE-listed property funds yet again delivering bumper returns to investors in 2007 - both in US dollar and rand terms.

Figures from Catalyst Fund Managers show that the SA listed property index was up 32% (in US dollars) from 1 January to 30 November 2007 - far outperforming global listed property, which fell by 9% over the same period (as measured by the UBS global investors' index).
 
The North American and European sub-sectors of the UBS index were down 11% and 21% respectively over the same period. In rand terms, SA listed property also outperformed - with a return of 29% in the 11 months to end-November - compared to a drop of 14% and 23% in North America and Europe respectively.

 


Catalyst Fund Managers MD André Stadler says US and European listed real estate has suffered alongside general equities, as the international investment community remains uncertain with regard to the full impact of the global credit crunch on property values and company earnings.

Stadler says Asian markets, such as Singapore, Hong Kong and Japan, appear to be relatively immune to sub-prime mortgage events, with varying degrees of exposure to the China and India growth engines underpinning those markets. Australian real estate has been less resilient, as the sector has high exposure to the European, British and US property markets.

Although Asian and Australian listed real estate still managed to stay in positive territory in 2007 (US dollar and rand terms) those markets performed nowhere near that of SA.

Question is, will SA be able to hold on to its lead in 2008 or are our property stocks also heading for a sharp downward correction? Most industry players believe that the latter is an unlikely scenario. Marc Wainer, executive director at Madison Property Fund Managers, says SA listed property prices are being buoyed, among other factors, by expectations of superior income growth.

Wainer says the market is factoring in distribution growth of more than 15% for some property stocks over the next year. Large pension fund managers, including the Public Investment Corporation (PIC), are also supporting property prices, with the PIC continuing to up its exposure to bricks and mortar.

Says Wainer: "The PIC aims to have a total of R70bn invested in property over the next few years. Its current investment is about R15bn, so it needs to invest a further R55bn. A portion of that will be in listed property, which almost creates an underpin at current price levels."

Another shift taking place is the long-awaited entry of foreign investors into SA listed property. Wainer says overseas investors already own around 9% of ApexHi A units, 12% of its B units and 8% of its C units.

Other major funds, such as Growthpoint Properties, are sitting with foreign shareholdings of around 5%. Offshore buying is expected to accelerate this year, particularly given how poorly the US, British and European property markets are performing compared to SA.

Craig Hallowes, spokesman for the Association of Property Unit Trusts (APUT), says commercial property supply constraints will continue to drive demand and values - both in the physical and listed markets. Says Hallowes: "Physical stock is short and there's a long lead time to bring new property on stream. In addition, building costs are escalating at levels well above the average inflation rate while the supply of zoned land is adding to the industry's woes, with long delays of up to two years in getting land zoned for development."

Liezel Conradie, executive manager at property management company Hermans & Roman, has a similar view. Conradie says the supply of new commercial development is simply not meeting current demand. She says developers have been hard hit by higher interest rates, land price increases and higher materials and labour costs. In some cases, materials have doubled in price over the past 12 months. Says Conradie: "That means those developers already in the market are poised to see huge returns on their investments.''

 

Last modified on Tuesday, 22 April 2014 14:17

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