Investors get solid returns on properties

Unsurprisingly‚ retail and industrial properties achieved lower vacancies and higher returns than offices‚ according to the South African Property Owners Association (Sapoa)/Investment Property Databank (IPD) SA Annual Property Index‚ released this week.

Income return came in at 8.9% while capital growth was 5.8%.

IPD SA's managing director Stan Garrun said the total return was "the result of a very steady income return"‚ and also "the first reasonable capital growth that has been posted in the market for a number of years".

Income returns were still buoying the market considerably‚ "and that has been the story of our success over the years‚ although in this particular year we saw much more coming from capital growth"‚ Garrun said.

SA remained "right at the top of the pile" in terms of income returns compared with other countries on the IPD database.

The index is based on a sample of 1‚669 properties covering R206.2bn worth of capital value at the end of December - representing about 60% of professionally managed investment property in SA.

The IPD said on Monday (25 March) that capital growth in the form of rising property values was driven in part by a 132 basis point bond yield firming during 2012.

Performance

The performance of property tends to track the performance of bonds because they are both income generating investments.

Returns were also underpinned by an overall above-inflation rental growth of 7.2%.

Within the top performing retail sector‚ which produced total returns of 17.1%‚ "larger shopping centres in particular experienced high demand‚ which drove strong rental and capital gains"‚ the IPD said.

At the other end of the scale‚ office vacancies remained "stubbornly high"‚ resulting in a significant lag in performance by the sector.

Total returns from industrial property were 15.9%‚ while office returns were well behind at 11.9%.

Garrun said "a real divergence in the market has occurred"‚ adding that "whereas we have seen a good turnaround for retail and industrial properties‚ concern remains over the state of the office sector‚ as seen by the high vacancies‚ particularly in the inner cities".

He said South African property had managed to prove its resilience given the moderate-to-soft economic outlook and relatively low levels of consumer and business confidence.

In a survey of the property sector‚ Garrun said that the next two years are not showing signs of an any substantial changes in the outlook for investment properties.

However‚ responses showed that "the forecast for the office sector is that by 2014‚ we will start seeing a revival"‚ he predicted.