Local fund managers are eyeing offshore-based property funds more than domestic ones because of political uncertainty and soft growth prospects.
According to experts, the local listed property industry has become a globalised industry and investors can now buy shares in companies that operate in the UK, Germany, Spain, Portugal, Australia and eastern European countries.
Recently, Emira Property Fund said it would enter the US for the first time. Property funds are also studying opportunities in Belgium, Netherlands, Sweden, Estonia and Finland.
With such varied choice, it is becoming more challenging for new funds to list and invest in SA itself and attract money.
Very few new listings have occurred in SA in 2017. The mooted listing of Inkunzi Student Accommodation Fund, which would be the first student housing group to list on the JSE, has stalled after it was originally scheduled to list in September or October.
"The market interest has totally shifted to offshore or offshore-focused stocks. Local-focused companies are not in the best position to raise equity ... largely due to political uncertainty, a volatile bond market, recent credit rating downgrades as well as a weak economic growth outlook. We have seen very weak numbers coming from locally focused funds," said Keillen Ndlovu, head of listed property funds at Stanlib.
Fund managers have been hunting for reliable, stable income-paying stocks.
Octodec Investments, which owns assets primarily in Johannesburg and Pretoria’s central business districts, managed to grow its dividend only 0.8% in the year to August.
Arrowhead Properties, which owns mostly second-tier offices, industrial and retail properties, recently forecast that its dividend would shrink 6.5% for the year to end-September 2018 as it would not use one-off income items to boost its dividend. The group would not pay dividends using capital profits because that would be unsustainable, said CEO Mark Kaplan. Some of its peers were using fee income and financial engineering to boost dividends.
But Garreth Elston, a fund manager at Golden Section Capital, said some property groups invested in SA were performing well and had the attention of local investors even if there was a clear discrepancy between local and offshore funds overall.
"By our latest calculations, just under 45% of the [FTSE/JSE South Africa Listed Property index] is now made up of assets external to SA.
"Companies with no exposure to the South African market make up half the top 10 price performers for the year to date, while the bottom 10 performers are heavily weighted towards SA assets.
"A substantial ... ex-SA focus though is no guarantee of price performance," he said, pointing to well-performing locally biased companies Equites Property Fund and Stor-Age Reit.
Elston said the stars of 2017 were offshore-focused, such as Greenbay Properties, Sirius Real Estate, NepiRockcastle and MAS Real Estate.
The geographically diverse Fortress Income Fund and Resilient Reit had also delivered exceptional returns.