Global and local risk aversion to general equities as a result of the uncertainty in Europe seem to be a blessing for the local listed property sector which has experienced a strong run in unit prices since the beginning of the year.
As a result of investor interest, the JSE's property index is up 14.5% since the beginning of this year, outperforming the JSE all share index which is up 5.2% year to date.
According to Growthpoint Properties executive director Estienne de Klerk, most real estate investment trust (Reit) managers are upbeat about the prospects for listed property as an asset class over the next two years, despite the economic troubles in Europe and concerns about global economic growth.
De Klerk said this was the overriding message to come out of the Nareit (National Association of Real Estate Investment Trusts) REITWeek investor forum in New York last month.
South African property loan stocks are similar to Reits. However, SA expects to have its own Reit structure introduced next year.
The internationally recognised Reit structure - a security that sells like a stock on the major exchanges and invests in real estate directly, either through properties or mortgages - exists in countries such as the US, Australia, Belgium, France, Hong Kong, Japan, Singapore and the UK. SA wants to adopt the Reit structure to align itself with the rest of the world.
De Klerk, who also heads the Property Loan Stock Association's Reit committee said several speakers highlighted expectations that the lower interest rate environment would continue for longer, which "is good news for the sector".
"Reits have undergone a significant metamorphosis since the credit crisis. Most companies have taken the opportunity to improve both their property portfolios and balance sheets," Ian Anderson of Grindrod Asset Management, who was also at the event, said.
Reits are attractive to both local and foreign investors seeking the higher yields and predictable cash flows on offer in a low return and low interest rate environment globally.
Alternative Real Estate fund manager, Maurice Shapiro, said that with Europe already fragile, asset allocation and stock selection became even more important.
"In a low interest rate environment, that is unlikely to change over the shorter term, the listed property sector offers investors solid income with inflation beating growth provided the correct underlying companies are chosen," he said.
Meago asset manager Thabo Ramushu said the listed property sector had benefited from global and local risk aversion to general equities as a result of the uncertainty surrounding Europe.
Source: Business Day
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