SA REIT Sector Offers Defensive Earnings Shield as Funding Costs Decline Through 2027

South African real estate investment trusts are drawing attention as a secure defensive option against ongoing global volatility driven by geopolitical conflict and oil supply shocks, according to recent analysis published in the SA REIT Journal. Mweishö Nene, Lead Real Estate Equity Analyst at SBG Securities, points out that declining funding costs will safeguard the sector's distributable earnings against negative performance surprises until early 2028. This macroeconomic shelter provides crucial stability for property investors navigating a complex domestic and international environment, positioning the asset class favourably as market participants seek reliable value storage.

Projected Returns and 12-Month Market Outlook

SBG Securities anticipates total returns ranging between 16% and 18% over the next 12 months for the listed property sector, surpassing the historical average annual expectation of 12% to 13%. This forecast relies on a projected 12-month exit bond yield of 8.41% alongside a repo rate reaching 6.25% by 31 December 2027, factoring in a marginal rise in vacancies due to ongoing pressure on retail rentals. Analysts derive a fair forward earnings yield of 8.00%, which incorporates a 4.8% re-rating above anticipated underlying earnings growth. Joanne Solomon, Chief Executive Officer of the SA REIT Association, emphasises that these insights from market specialists assist members and investors in evaluating sector dynamics accurately.

Distributable Income Divergence and Financing Dynamics

Recent years have exposed a disconnect between net property income growth and distributable income per share, highlighted by a 4.5% rise in like-for-like net property income contrasted against a 2.1% decline in distributable income per share during 2024. This divergence stems primarily from volatile interest rates affecting borrowing expenses. Typically, listed funds maintain fixed arrangements on approximately 80% of their debt for an average duration of 2.3 years, with the remaining balance floating at the three-month Johannesburg Interbank Average Rate plus a contracted margin. As expiring fixed facilities come up for renewal, facilities are anticipated to reprice between 50 and 150 basis points lower across 2026 and potentially 2027, underpinning forecast distributable income per share growth of 6% to 7% for 2026.

Balance Sheet Strengthening and Inflationary Headwinds

Fundamental balance sheet metrics are improving across the sector, characterised by enhanced interest coverage ratios and declining gearing levels as average debt costs drop. SBG Securities anticipates that inflation will average 3.4% in 2027, aligning closely with the South African Reserve Bank expectation of below 4%, while the repo rate targets 6.25% by the end of 2027 following a 25 basis point hike to 7.25% in September. The primary risk to this earnings protection framework remains a decisive policy shift by the monetary authority toward an aggressive rate-hiking cycle. However, current house views indicate that falling finance costs will remain the dominant driver, shielding listed property portfolios through 2027.

Source: SA REIT, 9 November 2026.

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