Real Estate Investor Magazine South Africa March 2015 | Page 53

listed

Property Shares:

The best performing asset class
Why are listed
property shares the
best performing
asset class?
BY mike brown

B

ack in late-2013, after the South African
Reserve Bank had unexpectedly raised interest
rates, listed property shares on the JSE suffered
a sharp fall. Many investment analysts and so-called
market experts, rushed to print publications or appeared
on TV or radio programmes, to say that property shares
as an asset class were dead for the foreseeable future.
Of course, one year later and listed property shares
have been the best performing asset sector on the JSE
by far. The FTSE/JSE Property Share Index (SAPY)
had risen by 47,4% for the year ended in January 2015.
Property unit trusts and ETFs have often done even
better. The Proptrax 10 ETF, which tracks an index of
the top 10 property shares on the JSE, rose by 53,7%
for instance, over the past year.
Why have these supposed experts been so wrong
about listed property shares?
Firstly, their future forecasts of doom were based
on the fallacy that property shares are predominantly
an income bearing asset. If interest rates rise, property
shares are expected to pay a higher yield. This will mean
their prices will need to fall, like any fixed income
security, such as Government bonds, for instance.

www.reimag.co.za

However, property shares do not have a fixed income,
they can grow their earnings and do. If they show a
15% growth in earnings for the year, paying another
1% or so in yield is no problem. So the price of listed
property shares does not have to automatically fall as
interest rates rise.
Secondly, listed property shares are a Net Asset Value
(NAV) play. Like any trust, if the value of the assets
in the trust rises, so does the price of a participatory
interest in that trust. So listed property shares, as Real
Estate Investment Trusts (REITS), typically show
price rises as the value of their assets (NAV) increases.
This has been the case for the past year or more and
will continue as consolidation and expansion of the
listed property sector on the JSE continues.
Looking ahead, South African interest rates can stay
low or even fall over the next year or more, particularly
if inflation drops as a consequence of lower oil prices.
The outlook for listed property shares, however,
continues to look good.

RESOURCES
etfSA.co.za
March 2015 SA Real Estate Investor

53