Listed property top money-spinner

The JSE’s R124bn listed property sector continues to surprise on the upside, surpassing the performance expectations of even the most bullish of real estate punters.

The sector, which comprises 18 counters that invest primarily in shopping centres, offices and industrial buildings, has delivered far better returns than any other asset class both for the year to date as well as over 12 months.  

Figures from Stanlib show that for the year to date (4 January to 26 October 2010), listed property delivered a total income and capital growth return of 28,27%. That’s more than double the 11,45% returned by the JSE’s All Share index (Alsi) over the same time. It also beats bonds and cash, which clocked up a total return of 14,57% and 5,74% respectively for the year to date.

For the 12 months to 26 October 2010, listed property delivered 29,07% compared to the 14,76%, 18,24% and 7,15% returned by the Alsi, bonds and cash respectively over the same time.

Listed property has also been a far better investment over the past year than residential property. Latest FNB figures show that investors would have earned a rather pedestrian 12,3% average total return from residential bricks and mortar for the 12 months to end-September 2010. That comprises average capital (or house price) growth of 4,5% plus an average rental income yield of 7,8%.

Keillen Ndlovu, co-head of Stanlib’s Property Franchise, cites a number of reasons for listed property’s stellar performance. The key driver appears to be growing demand from both institutional and retail investors, looking increasingly for steady and inflation-beating income growth.

Ndlovu says unlike equities, listed property never had huge earnings downgrades, with income growth averaging between 7% and 8% so far this year (excluding that of hotel fund Hospitality Property Fund).

The sector has been further buoyed by low inflation, interest rate cuts and a strong bond market. The latter’s performance has always been highly correlated with that of listed property. Ndlovu notes that the run in the bond market has largely been driven by huge offshore buying, with global investors flocking to South Africa’s shores because of the higher income yields on offer here compared to most other parts of the world.

Key question is whether listed property is likely to continue spinning healthy profits for investors. Kundayi Munzara, head of research at Investec Property Investments, is confident that property stocks will continue to beat general equities, bonds and cash. However, Munzara expects the margin between the returns offered by these various investments to narrow over the next 12 months. He says a key reason for this is that South Africa’s economic recovery appears to be vulnerable to a double dip scenario, which will put pressure on property company earnings.

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