Real Estate Investor Magazine South Africa June 2015 | Page 46

TRENDS

Deconstructing the

Retrospective
How the sector became a
winner over the past decade
BY JACQUES PLAUT AND YUSUF MOWLANA

T

he South African property sector has been a
huge winner over the last decade, returning
22% per year compared with 18% for the
FTSE/JSE All Share Index (ALSI).
While this past decade’s performance has been
fantastic, it is unlikely to be repeated. Investors who
buy into the sector today are only getting a 5.1% initial
dividend yield. This might not seem so much more
expensive than the 8.7% yield they will have received
in 2005, but it equates to a 70% price increase.
The sector’s 8% growth over the past decade is better
than inflation, which has averaged 6%, but worse than
the average Johannesburg Stock Exchange-listed
company, which has grown dividends at about 16% per
year over the same period.
In the last five years, there have been 29 new
property listings, more than in any other sector.
These have been driven by favourable valuations, but
also by recent changes to regulation favouring listed
property over unlisted property. Large new offices are
under construction in Sandton, Johannesburg, despite
already-high vacancies, generally low levels of net space
uptake and a trend towards more efficient use of space.
In most industries, high levels of investment, coupled
with more competition, equal lower returns for existing
players. With capacity expanding ahead of demand
growth, certainly investors must expect lower growth
in dividends for the next part of the industry cycle.
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JUNE 2015 SA Real Estate Investor

Re-valuation has added 6% to overall returns over
the last decade, but this may not be the case over the
next decade. Because interest rates are currently zero
in many countries, investors are ^Z[