Property lags as bonds climb higher

Listed property prices fell 19% between May and June this year. De Klerk said this was indicative of a re-pricing in the sector in the face of changing global markets. These dynamics included US monetary policy decisions, uninspiring economic results in SA, and concerns about the Chinese economy, De Klerk said on Tuesday (2 July).

There has been a global sell-off in equities amid worries the world is entering another period of financial turbulence, after the US Federal Reserve said it would halt its quantitative easing programme that stimulated the country's economy.

But analysts in SA believed the sector would bounce back. They said on Tuesday (2 July) that any equity volatility in the sector needed to be seen as temporary pain. Many of the property stocks have flattened out.

Listed property still provided both a steady income stream and capital growth over time, Stanlib head of listed Property Funds, Keillen Ndlovu said.

"Income is fairly stable and capital can be volatile. So listed property prices have changed but the market fundamentals have not," Ndlovu said.

Property still a good bet

Historical trends in SA's economy had shown that when bond yields rose listed property prices tended to decline.

"It's important to note that in the medium- to long-term listed property is a better bet than bonds because it offers growing income whereas bonds do not," Ndlovu said.

De Klerk, who is also chairman of the South African Reit Regulation and Taxation Committee, said the average yields in the sector were about 7.3% and most listed-property companies were expected to grow distributions between 4% and 12%. Consumer price inflation released in May was 5.6% year-on-year.

A Reit (real estate investment trust) is a listed company that owns income-producing property and invests in collateral debt instruments and hedges that reduce the risk of property-related loans.

While longer-term changes in bond yields could negatively affect the price of these property stocks, property fundamentals remained solid. The sector has raised more than R10bn in capital this year, from companies and funds.

"All the equity raising exercises have been successful and most have been over-subscribed," Ndlovu said.

SA's listed-property sector has seen this volatility before. Between May and July 2006 prices fell 26%. Then they fell by 37% between November 2007 and June 2008.

Source: Business Day via I-Net Bridge