Listed property shows signs of flagging

© adrian brockwell – 123RF.com

After several years of double-digit total returns, analysts are predicting listed property will struggle next year as domestic and foreign factors damp prospects.

The fear of an interest rate hike in the US has led to a selloff in bonds. This has resulted in bond yields rising globally. The performance of listed property tends to track bonds as both are income-generating investments and there is an expectation that domestic real estate markets will also weaken.

Year to date, South African listed property has outperformed equities and bonds, mustering a 15% return in rand terms for the first 11 months of 2015.

According to Catalyst Fund Managers' monthly listed property report, North America recorded a negative total US dollar return of -0.49% and a rand return of 4.30% in November. Australia managed a negative -2.66% US dollar return and a 2.02% return in rands.

Asia's return in dollar terms was a negative -0.97% and 3.79% in rand terms.

Although the FTSE-JSE SA listed property index (Sapy) was only slightly behind the US, with a negative total return of -0.50% in rand terms, the weak rand meant that it also recorded a -5.07% total return in dollars. Europe was the worst-performing market with a negative -5.68% total return in dollars and -1.14% in rand terms. Listed property is now likely to only just beat inflation.

"We are forecasting single-digit total returns of 6% to 8% in 2016 in our base-case scenario," head of listed property funds at Stanlib, Keillen Ndlovu, said yesterday.

This is about half the 15.04% that the Sapy achieved from January to November. In this period, the Sapy has beaten equities, which achieved 6.96%, cash (4.76%) and bonds (2.94%). Evan Robins, listed property manager of Old Mutual Investment Group's MacroSolutions boutique, said: "Next year will be tough operationally for SAbased operations, as have the last few years. The more prices come off this year, the better the return outlook next year."

The Sapy achieved a 26.6% return in 2014 including dividends, outpacing the JSE all-share index, which only returned 10.9%.

The South African listed property sector has seen a lot of consolidation this year, the most recent merger involving the tie-up of Capital Property Fund and Fortress Income Fund. It was the largest merger this year.

The new enlarged Fortress is expected to be included soon in the JSE/FTSE Top 40 index.

It will bring the total number of property companies in the index to five, the others being Growthpoint, Redefine, Capital & Counties and Intu Properties.