Buyers still abound

However, this time around the sector had lost less than 2% in the week following the rate announcement. Some property funds continued on their price rally, notably ApexHi C, which rose 4% in the same week.

And the overall dip comes off a high base, as a number of property stocks were touching 12-month highs earlier this month. Stanlib property analyst Evan Jankelowitz says the key reason for the sector's relative resilience is that there's simply not enough stock in the market to meet demand. It's no secret that large pension fund managers, such as the PIC, have become aggressive buyers of listed property in recent months in a bid to grow their property exposure. 

"Buying support could also increasingly be coming from retail investors switching from residential to commercial property. However, investors shouldn't expect significant gains over the next 12 months," he says.

Jankelowitz says that most of the good news is already priced in. "It would be foolish to expect listed property prices to continue to surge ahead at 30% to 40%/year, as we've seen over the past few years. But given the cycle of strong earnings growth, property still has the potential to outperform other income-generating asset classes, such as bonds and cash."

Macquarie First South Securities property analyst Leon Allison agrees that the recent interest rate hike will have a minimal effect in the short term on the sector's earnings growth outlook. He still expects it to report distribution growth of an average 12% over the next 12 months, suggesting that listed property remains an attractive income play.

Allison says the relative strength in the market could be further underpinned by a growing number of offshore income chasers starting to place SA-listed property on their buying lists. Allison says it seems SA's listed property index will be included in the prestigious FTSE EPRA/NAREIT global real estate index in first quarter 2008, a move that will help place SA on the radar of major European fund managers.

Meanwhile, the latest monthly overview from Catalyst Fund Managers confirms that the property sector had a sharp rally in September, with the index up 7,33%. That brings total returns for the year to date (January to September) to 27%.