The listed property sector was the biggest loser in the first quarter of 2018, largely because of sustained weakness in the share prices of the Resilient group of real estate companies and MAS Real Estate.
Management within the Resilient group has been accused of share manipulation in numerous reports, which suggest share prices were kept artificially high by a series of secretive trades by people closely related to the group.
MAS Real Estate’s share price came under pressure due to the euro weakening against the rand and also MAS’s surprise decision to suspend work on a mixed-use project in Ljubljana, Slovenia. According to research by Anchor Stockbrokers, the FTSE-JSE South African listed property index (SAPY) recorded a total loss of 19.61%, including capital and income contributions.
The best-performing sector was bonds, which delivered a total return of 8.06%, followed by cash, which achieved 1.72%, and then equities with a total loss of 5.97%.
The property sector’s economic fundamentals remain under pressure and institutions have been hesitant to allocate funds until its volatility subsides.
But some local property stocks have performed well nonetheless, including Balwin, Fairvest and Emira Property Fund with total returns for the quarter of 20.6%, 15.8% and 15.5%, respectively. "It was a pretty horrible first quarter for the index, though this was largely accounted for by the negative impacts of the Resilient group and Europe-invested MAS. South African focused stocks had a much more positive quarter than the last quarter, but the recognition that the sector’s challenges will remain for quite a while has replaced the initial exuberance from December," said Garreth Elston, a research analyst at Golden Section Capital.
Only five stocks ended the quarter lower than the SAPY index: MAS Real Estate and four members of the Resilient group of companies: Nepi Rockcastle, Greenbay Properties, Resilient and Fortress’s B shares. These companies, along with Fortress A shares, account for about a quarter of the SAPY index.
Jay Padayatchi, executive director at Meago Asset Management, said the Resilient group had undoubtedly been a drag on the sector.
The share prices of companies within the group had been highly erratic, and institutions had been investing in other sectors instead, said Padayatchi.
Looking at retail, which is traditionally the strongest subsector of commercial property, Padayatchi said that landlords who owned weaker centres were "no doubt in a poor negotiating position".
"The higher-quality centres were performing up to an acceptable standard but rental negotiations were still tough and national tenants were putting significant pressure on escalation rates on new leases or renewals," he said.