After a dramatic two-week slide in listed property prices‚ the sector rallied on Tuesday (4 June)‚ although some of these gains were lost the following day.
The last week of May's saw a decline of 8.94% in listed property prices "and this was the biggest move that the sector has ever seen in a week‚ since we have followed the property index from 2002"‚ according to Alternative Real Estate fund manager Maurice Shapiro.
Shapiro says listed property "has been tracking bond yields extremely closely" and is therefore‚ relative to bond yields‚ unchanged in price compared with the sector's peak on 20 May.
"It has been a global interest rate move rather than a South African property fundamental move," he said.
He says the sector's rally this week was due to a strengthening rand which bolstered and stabilised bond yields.
US Federal Reserve chairman Ben Bernanke said that the US Federal Reserve would reduce its monthly bond-buying in response to gains in the labour market.
Shapiro says this led to a sharp rise in US bond yields‚ which reduced the attractiveness of riskier emerging market investments given decent returns on US bonds. This‚ along with negative sentiment in SA as well as interest rates remaining unchanged and a weakening rand‚ contributed to a weaker SA bond market.
Shapiro says while many analysts see the sector's significant price decline as a chance to buy, he doesn't believe it's that much more of a buying opportunity than two or three weeks ago‚ relative to bonds.
Over the long term‚ bond yields are expected to remain "lower for longer"‚ which is positive for listed property.
Also‚ Shapiro says local property fundamentals are in a far better place than they were in mid-2009 when vacancies in the office market were much worse and the banks weren't lending money.
"The actual quality of underlying properties is now much better - the underlying assets have improved substantially over the past few years‚ yet the differential between bond yields today and in 2009 is exactly the same."
While the JSE's larger property companies such as Growthpoint Properties may have seen foreign investor sell-offs‚ these companies' conversion to real estate investment trusts in the coming months may see foreign inflows returning.
Grindrod Asset Management chief investment officer Ian Anderson says last week's price action resulted in the yields on listed property increasing to almost 7% from less than 6% two weeks ago.
"This represents an attractive entry point for investors looking to secure a high initial income yield and long-term inflation-beating income and capital growth. However‚ the sector may remain volatile in the short-term and will react to shifts in the value of the rand and bond yields‚" Anderson says.
Stanlib investment analyst Ndabe Mkhize says the sell-off was "grossly overdone"‚ with underlying property fundamentals remaining strong.
Mkhize says the most recent examples illustrating the sector's fundamentals were Vunani Property Investment Fund's and Resilient Property Income Fund's trading statements‚ showing the companies expected distribution growth of more than 15% and 12% respectively for the six months to June.
Furthermore‚ he says, other companies are growing in excess of 7%.
"During the sell-off period‚ the bond market and the rand had performed poorly‚ and some large investors were rearranging their books and needed to sell down immediately," he said.
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