South Africa’s listed property sector has outperformed bonds, equities, and cash in the yar-to-date.
With anticipated rate cuts, the sector is poised for further growth in earnings, increased retail spending, and potential share price appreciation, according to an independent property analyst.
Recently, the sector has rallied due to the US Federal Reserve’s indication of ending the rate hiking cycle, positive sentiment from the formation of the Government of National Unity (GNU), and expectations of interest rate cuts in South Africa.
Keillen Ndlovu, independent property analyst, said: “In global comparison, SA listed property outperformed other asset classes year-to-date thanks to their diversified portfolios whereas
globally, listed property with mostly specialised assets underperformed and delivered marginally positive returns of 2.9% in rand terms.”
Year-to-date to July, SA’s listed property has delivered 14.4% in returns (income and capital growth) compared to bonds (9.8%), equities (10.0%) and cash (4.9%).
The sector has recovered from being the worst performer delivering a negative 2.2% over the same period in 2023, said Ndlovu.
Joanne Solomon, CEO of SA REIT Association said rate cuts will benefit the listed property sector leading to a recovery in lending and capital markets which may result in increased investment activity.
“Our members are reporting an improvement in property fundamentals – declining vacancy rates, rental increases – albeit off a low base, and demand for space, especially in industrial and logistic, retail and select office assets in key locations.
“We expect property fundamentals and earnings to continue to improve.”
• SA REITs are seen as investable assets in the current property cycle
Investors choose from quality diversified portfolios
Delivered 14.4% in returns year-to-date to July from negative returns in the same period in 2023
REITS appeal to investors in developed markets with high growth rates
• Interest rate cuts expected to further boost the sector
Growth in earnings will materialise
Share price performance is expected over time
Boost retail sector spending
A Real Estate Investment Trust (REIT) is an international standard for property investment, where a tax dispensation ensures a flow-through of net property income after expenses and interest.
In 2013, there were 54 real estate listed stocks on the JSE – this figure was down to 46 at the end of the first quarter of 2024.
There are currently 35 locally focused listed property stocks on the JSE of which 29 are REITs and six are non-REITs. There are 11 offshore-focused stocks, of which seven are REITs and four are non-REITs, according to research done by Ndlovu.
Ndlovu was speaking at a recent Unlock the Stock Webinar focusing on the South African REIT sector with market analysts, The Finance Ghost and Mark Tobin.
“I believe that REITs are highly investable at this point in the cycle – investors benefit from a selection of high-quality JSE-listed REITs whose management teams have lived through tough economic cycles,” said The Finance Ghost.
The Finance Ghost said REITs have the potential to perform well from this point onwards given the significant renewed optimism around South Africa and anticipated rate cuts.
Additionally, certain REITs appeal to investors in developed countries with growth rates like Spain and Poland as well as developed markets like the UK with lower risks in general.
Ndlovu said that even though REITs earnings will likely decline by 3%-4% on average this year mainly because of higher interest rates, earnings will return to positive territory in 2025 and to inflation beating levels in 2026.
“If the economy grows faster and interest rate cuts happen sooner and more aggressively, we can see robust growth in earnings earlier than 2026.”
Over the past few years, the sector has seen a decline in equity raised.
From raising R69.4 billion in 2014, SA listed property raised R7.4 billion in 2023. However, there has been decent activity so far this year with Vukile Property Fund raising R1 billion and Sirius Real Estate raised £150 million from SA and offshore investors.
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