Listed property ‘starting to look better’

Posted On Wednesday, 09 July 2008 02:00 Published by eProp Commercial Property News
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The pendulum seems to be swinging back towards the sector through there could still be further price depreciation.

Keillen NdlovuSouth African listed property which has now lost 37,1% of its value since November last year due to soaring inflation and interest rates is starting to look attractive to investors, say analysts.

However, there may still be some risk of further price depreciation, as bond prices could weaken because of inflation and interest rate uncertainty (the performance of listed property tends to track the performance of bonds because they are both income generating investments).

Investors are also tending to favour cash because of the capital protection it offers.

Keillen Ndlovu, co-head of Stanlib Property Franchise, said yesterday the FTSE/JSE SAPY index (listed property

Early last month there was a small rally in listed property prices after news that the monetary policy committee was hiking interest rates by only 50 basis points.

The market had priced in a hike of 100 basis points, so the news brought some relief.

At that stage the sector had lost about 32% of its value and after the announcement it recovered about 2%. But since then it has experienced a steady decline in prices.

Ndlovu said the “sector is looking attractive”, but there was “still a risk of further weakening in bond prices” and this could negatively affect listed property pricing.

He said next month was the major reporting season for listed property companies and funds, which were expected to deliver average distribution growth of 11%.

This indicated the sector was still supported by solid property fundamentals.

“The sector is trading at a forward yield of just under 12%. This yield, which grows every year, is not far off the return from cash and is certainly better than bonds at 10,4%.

“Other signs of value include the fact that several directors bought their companies’ units during the past few weeks and that there are talks emerging around unit buy-backs.

“Discounts to net asset values are over 20% and listed property yields exceed physical property yields by over 2%,” said Ndlovu.

Paul Duncan, investment manager at Catalyst Fund Managers, said that fundamentally, over the short term, cash was still attractive to investors as an investment.

“Local and global economies have been characterised by a series of events that have led investors to change their expectations and tolerance for risk.

“Investors are nervous and the result is a global flight to safety and a focus on short-term capital protection,” said Duncan. Cash was providing an attractive income yield with “the guarantee of capital protection”, he said.

Investors were showing a preference for high income yielding cash, which offered capital protection, over lower income-yielding listed property, which had income growth but “capital upside and downside potential”.

Duncan said if an investor had a long-term view of more than six to 12 months, property was “attractive as an alternative to cash and bonds”.

“We are comfortable with the growth in income (from listed property companies) over the next few years and ultimately this should translate into unit price appreciation,” he said.

Len van Niekerk, head of quoted property at Old Mutual Investment Group SA, said that listed property valuations were attractive given that the income yield was nearly 12% and growth was expected to be in the region of 9% or 10%.

“Earnings income growth is expected to remain relatively robust, given the low vacancy rates and constrained supply environment,” said Van Niekerk.

He said the listed property market had priced in a tremendous amount of bad news already. “The key to unlocking this on a sustainable basis, though, rests on the macroeconomic outlook, especially with regard to inflation and interest rates,” said Van Niekerk.

Last modified on Monday, 21 April 2014 14:09

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