The R223 billion South African listed property sector’s underlying property and fund fundamentals are showing improvement, despite the recent bond-driven share price volatility on the JSE Real Estate Investment Trust (REIT) board.
“It’s important for investors to realise there are many different factors that influence the performance of property investments,” explains SA REIT Regulation and Taxation Committee Chairman and Executive Director of Growthpoint Properties, Estienne de Klerk.
SA REIT, an umbrella body that works to promote REITs as an investment class, also strives to educate investors about the opportunities and challenges in the listed property sector. Average trades in South African listed property exceed R7 billion a month.
Positive market signals noted right now include more proactive leasing to maximise demand and ensure rental reversions result in maintaining and growing rental income. More attractive tenant incentives are driving better occupancy levels, as are market-related rentals. Slowing utility cost increases are a welcome factor after years of significant cost escalations.
Despite this, shifting bond yields are set to continue to influence listed property share prices resulting in continued capital market volatility.
At the end of August 2013, listed property in SA had a rolled yield of over 7% for the sector as a whole. The expectation is that, over the next 12 months, income distributions will grow approximately 6% to 7% for the sector as a whole.
While the sector’s short-term outlook remains cautious, analysts are optimistic that, over a five-year investment horizon, listed property as an asset class can deliver total returns of between 10% and 12% a year, as reported in Catalyst Fund Managers’ monthly Listed Property Sector Monthly Review for September 2013.