It is becoming harder to make the case to invest in SA’s listed property stocks while economic growth is weak and funds are raising little capital at home, a panel of landlords and fund managers said on Wednesday at a property conference.

Last year was the worst year for the listed-property sector, which is worth R590bn. It suffered a loss of 25.26%, which includes dividends and capital growth. Moreover, share prices of some companies slipped to well below the net asset value (NAV).

Landlords struggled to sign leases at higher rentals than before because tenants were under pressure because of the weak economy. The scandal around the Resilient group of companies — Resilient, Fortress, Nepi Rockcastle and Lighthouse Capital — also cost the sector dearly after a sell-off in these four stocks saw them lose more than R120bn of their value.

However, fund managers have said that since stocks were trading at discounts to NAV, it was a good time to buy “cheap” property counters.

But SBG Securities analyst Bandile Zondo said at the SA Property Owners Association (Sapoa) conference in Cape Town on Wednesday that the sector was actually fairly priced, which made it challenging for property stocks to attract new investors.


General equity investors in particular could invest in an array of sectors and they were not bound to property.

“There are property stocks which are at attractive yields but I wouldn’t say the sector is over or underpriced. It's fairly priced, in my team’s view, and I think much of the bad news has been priced in,” he said.

Zondo said property stocks with South African exposure needed the economy to grow at more than 2% to start getting momentum into their share prices and dividend growth, otherwise they would remain fairly bland investments.

“We need more investors in the economy for property stocks to excel. Right now, business confidence is low and there just isn’t enough investment. The listed property sector used to raise R40bn-R50bn a year, but this year only R2bn has been raised,” he said.

Estienne de Klerk, SA CEO of Growthpoint Properties, the largest real estate group in the country, said the current economic environment was the hardest he had faced in his 25-year commercial property career.

“I don’t think anyone in the sector has faced a tougher economic environment than the one we are currently in. These are the toughest  circumstances I have worked in. We have to manage through it as an industry,” he said.

De Klerk said it did not help that some corporate governance problems at a handful of funds had created a cloud of scepticism around the listed property sector and he and other executives of real estate investment trusts were going on drives to clear the image of the sector.

“Steinhoff did not cause investors to paint all equities with the same brush, but governance issues at a few property companies have led to listed property becoming a pariah,” he said.

The SA Reit Association had been working on measures to get general equity investors to return to listed property, De Klerk said.

“There are pockets of opportunity in the market. We have opened new businesses, such as our fund management business and hospitals business, and I am positive over the long term,” he said.

Growthpoint Healthcare Property Holdings, an unlisted Reit was launched in 2018 with a R2.4bn portfolio including private hospitals and doctors rooms.

Evan Robins, a portfolio manager at Old Mutual Investment Group, said ultimately JSE-listed property was a function of the economy and even though about 45% of it was offshore, returns looked set to be modest for 2019 and 2020 overall.

“Companies will try to beat inflation with their total returns, but dividend growth is subdued with few funds having achieved more than 3% in dividend growth in the past year,” he said.