SA climbs world charts

Global investors on the prowl for untapped property investment opportunities are discovering that SA is cropping up more frequently in global research as a market with serious allure.
 
Ernst & Young's 2006 global real estate investment trust (Reit) report spotlights SA listed property as one of the most exciting in the survey. SA is the top performer over the past three years with a total return of 34%. In the past year, says the report, SA listed property racked up returns of 23% and was outstripped only by New Zealand.

"Yes, SA is becoming more visible," says report author Ed Psaltis, a partner at Ernst & Young's property division in Sydney, Australia. "Even before our report was released, our head office in New York was forecasting SA as one of the new and emerging markets in the global property and Reit sectors."

Describing SA as a lesser-known Reit market, the report says it enjoys the lowest volatility of all 13 countries surveyed, offering an appealing mix of high returns and relatively low risk. "The results were a surprise to many, but there's a greater awareness now of opportunities in SA," says Psaltis.

He says SA should energetically educate the international investment public and scotch fears about foreign exchange restrictions and low growth. Some analysts estimate that foreign holdings in SA's US$12bn listed property sector are worth no more than $2bn-3bn. Others say the figure is much lower, around $100m.

It isn't only SA listed property that's making researchers sit up and take notice. International property consultancy Jones Lang LaSalle (JLL) rates SA as one of the most improved real estate markets in the world in its 2006 real estate transparency index. "Real estate transparency is a major component of risk faced by investors, especially as they get more active in cross-border deals," says Padraig Brown, a global analyst at JLL in London.

The report assesses institutional frameworks, enforcement of rules and respect for private property rights. SA's ranking rose from 21 out of 56 in 2004, to 13 in 2006, outperforming countries like Switzerland and Norway. The report spotlights SA as the only transparent non-European real estate market in the Middle East and Africa region.

"SA's property market is unique among emerging markets as its transparency is similar to that of many more developed nations," says Brown. Nevertheless, he points to comparatively small stocks of investment-grade assets and competition from local investors as constraints for international buyers.

First-time visitors clicking on to the homepage of the UK-based Investment Property Databank (IPD) will discover that SA was also the highest-performing institutional property market in the world in 2006. The only country to post total returns in excess of 25%, SA pipped high-performing property markets in Ireland and Canada to the post.

The million-dollar question is whether such positive reports will attract more investment. Global researchers think they will. Brown argues that research boosts investor confidence, as well as overall market transparency. He believes there's a good correlation between transparency and increased capital flows into a market.

However, Wits professor Francois Viruly says investors should interpret international studies with care. "SA's long-bond rate - the basis of property returns - is about 8%, which is close to double the European or North American figure," he says. "Because SA is an emerging economy, investors will expect higher returns as a matter of course."

Still, SA's solid property data means it's often the only African country to be quoted in global reports, which reduces the barriers to entry for foreign capital. In the end, it's the business environment that will attract capital. "Investors trust a proven, robust, liquid and resilient property market that is here for the long term," says Psaltis.