Property's recent performance
13 Jun 2013
A lot has been said and asked about property's poor performance during the last week of May. Property is a hybrid asset class with a high positive correlation to bonds. This basically means that when bond yields, for example, rise, then property yields will follow suit, although not necessarily to the same degree. The opposite also holds true, when bonds yields drop, so do property yields.
So, during the last week of May, foreigners were nett sellers of our bonds, to the tune of just over R6 billion. On Thursday, 30 May, foreigners sold a nett R5.5 billion of our bonds. To put this into perspective, this was the biggest one-day sell-off since September 2011. This led to significant bond market weakness and the subsequent jump in long bond yields (R186) from 7.055% to 7.57%.
Due to the high positive correlation between property and bonds, property yields followed suit and rose from 5.81% to 6.34%. This represented a percentage point jump of 9.21.
So, due to the inverse relationship between property yields and property prices, as can be seen in the graph below, property prices plummeted.
Property prices dropped a massive 8.25% during the last week of May. This obviously has a knock-on effect on property unit trust funds. The worst-performing property unit trust over the last week of May lost 10.88%. The best-performing property fund lost 4.57% and the category average retuned -8.57%.
The SA Listed Property Index has subsequently recovered "some" of the above-mentioned losses. The index is up 2.63% since 31 May, 2013.
About Melvyn Lloyd
Melvyn Lloyd has a BBA (Bachelor of Business Administration) degree from UNISA. He joined Glacier by Sanlam in 2008 as a client services consultant. He later moved to the Business Communications division, working closely with financial intermediaries. He joined Glacier Research as an investment analyst in October 2010.
