Why analysts are confident listed property will bounce back in 2019
Double-digit total returns forecast after nightmarish 2018
Fund managers are confident that the listed property sector will make a sharp recovery in 2019, saying the sector’s offshore exposure, as well what looks like the start of a recovery of consumer confidence in SA, could support it.
They are forecasting that the FTSE/JSE SA Listed Property Index (Sapy) should deliver double-digit total returns in 2019. The index includes the top 20 liquid real estate companies by market capitalisation with a primary listing on the JSE and has lost close to 26% in 2018 so far. Total return includes both capital and income growth.
Fund managers said the recovery should take place barring any severe shocks to economic growth such as any potential fallout at struggling national retailer Edcon, which occupies significant space in most shopping centres.
Mvula Seroto, an investment analyst at Catalyst Fund Managers, said his group expected the real estate sector to deliver total returns of 14%.
The Sapy includes mostly real estate investment trusts (Reits) which have to by definition pay out the majority of their income as dividends on a regular basis.
Wynand Smit, a real estate analyst said while economic conditions were not expected to improve rapidly in the short term, there a number of factors which would make listed property a worthy investment compared with other equities as well as bonds.
The South African economy officially exited the recession after reporting 2.2% GDP growth for the third quarter of 2018. A survey of economists by Bloomberg forecast growth of 0.7% total growth in 2018 and 1.5% in 2019.
“We expect listed property to deliver a total return, made up of share price movement plus distributions, of roughly 13% to 14% per year over the long term,” said Smit.
One event which would wreak havoc for property would be if the Edcon group was forced to shut all its stores and retrench thousands of workers.
Garreth Elston, of Reitway Global, said the closure of Edcon would “be extremely negative for Reits that have exposure to the company”.
Howard Penny, of Capricorn Fund Managers, said 2019 “had to be a better year” in terms of listed property’s total returns. Many property stocks were trading at high dividend yields which suggested their share prices were set to rally as the companies continued with their everyday business, he said.
SA Reit Association marketing committee chair,Andrea Taverna-Turisan, said listed property still had safe haven qualities. Investors and analysts should know with reasonable certainty what to expect from an investment in the Reit sector in 2019 because South African property funds had “relatively predictable earnings”, he said.
“SA Reits are exposed to the best commercial properties in SA and, in some instances, offshore. Their property income is underpinned by lease agreements with tenants in these property assets. Rentals are contracted and most escalate at a predetermined rate annually, around 6.5% to 8% in the current domestic market,” he said.
The last time the SA Listed Property Index (Sapy) suffered a negative return was during the subprime crisis in 2008, when the sector lost about 4.47%.
The fall in the Sapy was triggered by allegations of insider trading and share price manipulation against the Resilient stable of companies, which includes Resilient, Fortress, Greenbay and Nepi Rockcastle.