Listed property takes rate hike in its stride

Posted On Friday, 13 June 2008 02:00 Published by eProp Commercial Property News
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Physical commercial property market has not weakened as much as the listed property sector.

Tito MboweniThe South African listed property sector recovered nearly 2% of its value on Thursday afternoon following the decision of the monetary policy committee (MPC) to hike interest rates by only 50 basis points.

Reserve Bank Governor Tito Mboweni had been widely expected to hike interest rates by 100 basis points and there was evidence the sector had factored this in, with a 0,8% drop in value on Thursday morning prior to the afternoon announcement.

It appeared the market was relieved by the news and that this sparked the mild rally.

Keillen Ndlovu, co-head of Stanlib Property Franchise, said the market “had priced in about a 100 basis point interest rate hike”, and the smaller hike came as a relief.

Higher interest rates and soaring inflation have battered the listed property sector since last year.

From November to Thursday morning the sector had lost 34% of its value, said Ndlovu.

Vuyani Bekwa, portfolio manager at Investec Property, said the fact that the Bank had raised the rate by 50 basis points was good news for the sector.

Len van Niekerk, head of quoted property at Old Mutual Investment Group SA, said the announcement “came out on the better side of expectations”.

But that did not mean the price volatility would be a thing of the past.

“It is difficult to see the sector achieving a sustained rally until we’ve seen a peak in inflation. We are expecting this to be somewhere around the third quarter of this year,” said Van Niekerk.

The sector was offering value as it was trading on an attractive forward yield of 11%, but that it was difficult to see this value being “sustainably unlocked” until sentiment improved.

“There is still a lot of uncertainty in the market. About 80% of what has happened to listed property is a result of interest rates and inflation rather than the underlying property fundamentals. The weakness over the past few months is similar to the weakness in other interest rate sensitive sectors such as retail and banks,” said Van Niekerk.

Leon Allison, property analyst at Macquarie First South, said the market may “see a short-term price uplift in the listed property sector”, but that the volatility was expected to continue.

Allison also said the physical commercial property market had not weakened as much as the listed property sector and that the market could expect some softening in the capitalisation rates of physical property.

“Due to physical property not weakening as much as listed property it has become more expensive for listed property companies to make acquisitions in the physical market,” he said.

Rael Levitt, CEO of auction group The Alliance Group, was optimistic about the prospects for transactions in the commercial property market.

“In the commercial property market, yields track interest rates. Many purchasers and sellers have been anticipating a 200 basis point hike and this has slowed transactions. In fact, we will now see more buying activity in the commercial property market until the MPC meets again.”

Last modified on Monday, 21 April 2014 16:17

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