Real Estate Investor Magazine South Africa May 2014 | Page 52

LISTED

BY IAN ANDERSON

Listed property
Is it on its way to recovery?

S

ince the South African Reserve Bank (SARB)
raised the repo rate by 0.5% in January, South
Africa’s listed property sector (as measured
by the FTSE/JSE SA Listed Property Index) has
returned 11.3%.
Given the negative outlook for listed propert y
expressed by most fund managers after the SARB’s
announcement, the sector’s recent performance can be
only be described as very surprising. Does this mean the
sector is on the road to recovery, after prices declined by
almost 21% between mid-May in 2013 and the end of
January this year?

The short answer is probably not, but it’s more
complicated than that. Last year, investors sold their
listed property shares in anticipation of higher bond
yields and higher official interest rates, after comments
from various Federal Reserve spokespeople that some
forms of monetary stimulus would soon be withdrawn
from the US economy. Bond yields spiked globally and
listed property prices fell. In South Africa, prices fell
further as inflation accelerated, prompting speculation

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May 2014 SA Real Estate Investor

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that the SARB would be forced into raising official
interest rates, which they did in January.

At the same time, the outlook for economic growth
in South Africa has continued to deteriorate, placing
further strain on underlying property fundamentals.
Despite this, most listed property companies produced
financial results that exceeded analyst expectations.
Distribution growth for the sector as a whole
accelerated to 8% by the end of the first quarter this
year, with similar levels of growth forecast for the
remainder of 2014 and throughout 2015.

Normally an acceleration in distribution growth
like this would result in lower listed property yields
(i.e. higher pr X