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Listed property investment prospects

08 Jan 2014

With 2014 having kicked off and some people looking at investing money, the listed property sector may be ideal for investors looking to cash in.

STANLIB fund managers expect the sector to achieve distribution growth of between 7 and 8 percent over the next 12 months, comfortably outpacing inflation.

STANLIB fund managers expect the sector to achieve distribution growth of between 7 and 8 percent over the next 12 months, comfortably outpacing inflation.

“Our four year total return outlook for the listed property sector is 8 percent, which we believe is attractive to other asset classes given our assumption of bond yields at 9.25 percent in four years' time,” says STANLIB head of listed property funds, Keillen Ndlovu.

He explains that they are not too concerned about the outlook for the retail and industrial property market as they believe there is sufficient demand for space in these property types.

However, they are concerned  about the prospects for the office property market, pointing out that the concern emanates from the fact that the supply of ’speculative’ office stock is on the rise while GDP growth is still too meagre to stimulate any net new demand from corporates and small businesses. 

Looking back at 2013, Ndlovu notes that in the first half of the year the total return for listed property was up around 20 percent with the total return sitting at 3.24 percent.

The erosion of the total return since May 2013 is as a result of US and RSA bond yields and subsequently property yields increasing (prices declining) substantially on the back of fears that the Fed would start tapering its quantitative easing program perhaps sooner than the market was originally anticipating.

The sector raised circa R17 billion of equity during 2013 through a combination of Initial Public Offerings and equity raises by existing companies – the amount of equity raised exceeded our expectations, points out Ndlovu.

“We welcome this fact as most of the equity raised by existing companies has been used to improve the quality of the underlying portfolio.”

Furthermore, he says the property listings in 2013 have enhanced the choice available to investors through differentiation, for example, Investec Australia Property Fund gives investors access to the Australian property market while Attacq Limited gives investors exposure to development and capital growth. 

A number of the smaller and mid cap companies engaged in corporate activity towards the end of 2013 and Ndlovu says this will continue this year as it becomes more difficult and expensive for existing companies to raise equity and as the availability of good quality property acquisitions becomes more and more scarce.  

“Listed property companies continued to grow their distributions at a healthy pace, in many instances listed property companies delivered distribution growth ahead of the market’s expectations,” says Ndlovu.

While the office sector remained a pain for many owners, he says vacancy levels in the retail and industrial sectors remained at healthy levels in 2013. – Denise Mhlanga

About the Author
Denise Mhlanga

Denise Mhlanga

Property journalist at property24.com

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