WHAT THE FUND
MANAGERS ARE
SAYING.
The property sector, South Africa’s
best performing asset class over the
past 20-odd years, hit a wobble in
May retreating, along with equities,
from highs that saw the property
index fall roughly 10% in a matter
of weeks.
this notion that listed property
is not volatile, says Evan Robins
manager of the Old Mutual SA
Quoted Property Fund. While SA
Reits offer an attractive investment
proposition, in the short term they
are inherently volatile. “The primary
driver in this latest sell-off was not
property issues, but the macroeconomically determined increase
in bond yields, off which property
is valued. Property benefitted when
“A 20% return is not the norm.
Past returns were a result of all the
stars being aligned. These included
positive property fundamentals and
supportive capital markets,” says
Paul Duncan, investment manager
with specialist real estate investor
Catalyst. “The stars have come
out of alignment and we may see
further correction, but it does not
mean the sector will not do well. I
would say investors could expect
returns of 10% to 12% a year on a
five year view. But investors need
to be comfortable with short term
share price volatility”
Has the correction generated
buying opportunities?
Prices are coming in at healthier
levels, says Robins, but they are
still not cheap. In the short term
consensus is that bond yields could
rise further, settling at 8.5% to
9% at year-end, which will have a
negative impact on capital returns
for property.
Figure 1: Source: I-Net Bridge 30 June 2015
What does this mean? Is this the
end of the listed property bull run?
Have macro-factors turned against
property? Or are there now buying
opportunities for the brave?
Moneyweb spoke to a number of
property fund managers to get their
take on what is happening in the
property market.
these bond yields fell – at one point
to extreme levels, but with bond
yields now rising, investors are
getting nervous.
Does that mean its time to get out
of property?
The market could still pull back
another 5% to 10% as a function of
bond yields rising, but now is not
the time to panic, says Kalla. Instead
it is time to be rational and strategic
in your investment approach.
“The lower prices allow investors
to pick up higher yields; there are
good quality stocks offering 8% to
9% distribution yields that are still
growing ahead of inflation,” he says.
“This correction was not
unexpected, we had been warning
that the sector valuations were
looking steamy the last few
months,” says Mohamed Kalla,
portfolio manager at property
specialists, Sesfikile Capital.
Earlier this year bond yields started
to move up from previously
low levels, but property kept on
going – this should have been a
warning sign. “This may have had
something to do with the inclusion
of companies like Hyprop, Resilient,
Attaq in global indices,” says Keillen
Ndlovu and Head: Listed Property
Funds, Stanlib. “This attracted index
trackers into the market between
February and May, and helped drive
demand – even in an environment
that was starting to look volatile.”
Volatility, they say, should be
expected. S