It implies the listed property sector, which has been outperforming other asset classes this year, may be overvalued. Taken by itself, listed property has outperformed bonds, cash and other equities.
However, the IPD SA Property index, published last week, showed that total property returns in SA including both listed and unlisted property actually dropped this year compared with the previous year.
On top of this the listed property sector is under pressure because of weaker economic activity in SA. Various funds are increasingly looking abroad for opportunities which offer more attractive yields which will strengthen their income streams.
The IPD's index is developed by US-based MSCI. Last week, it showed that the South African investment property sector, both listed and unlisted, delivered an ungeared total return of 12.9% last year, down from 15.9% in 2013.
While income returns were steady, capital returns weakened. The total income return for the sector was 8.7%, but the capital growth slowed to 4% from 6.8% the year before, reflecting a more cautious approach among valuers.
The index, which is sponsored by Nedbank Property Finance, is based on asset level data collected from a sample of 1,726 properties covering R264bn capital value at the end of December last year. This represents around two-thirds of professionally managed investment property in SA.
"The latest IPD SA annual property index reveals modest performance in 2014, with industrial property the best performer," said Stan Garrun, Executive Director of MSCI.
"Overall, the results for property are unspectacular, but fundamentals, particularly rental growth and occupancies, were stronger, and costs were lower in 2014 than they have been for some time."
Grindrod Asset Management Chief Investment Officer Ian Anderson said he expected direct or fixed property to continue to underperform listed property. "It is underperforming significantly and has done for quite some time now and the listed property sector has moved from trading at or just below net asset value to premiums of approximately 35% of net asset value."
Ranked by sector, industrial property was the top performer for listed and direct property combined last year, with a total return of 14.1%, outperforming retail which mustered a 13.3% return, according to the index. The office sector achieved a 12.1% total return courtesy of a 9.5% income return.
Nedbank Property Finance Managing Executive Robin Lockhart-Ross said the index had impressed despite tough market conditions.
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