THE sale of the Victoria & Alfred Waterfront could boost investment in SA’s listed property sector, says Madison executive director Mike Flax.

However, he says the listed property sector will have to increase its market capitalisation and consolidation efforts if it is to be attractive to foreigners.

While only about 3% of the South African listed property sector is in foreign hands, “it has the capacity to increase to 15% to 20% in line with other JSE sectors”, Flax says.

“I think what is most important is that it’s in line with the western world’s search for yields. They could still buy South African property stocks for fatter yields than anywhere else. It’s one of those markets that has one of the most positive rental fundamentals in the world right now, especially with regards to commercial and industrial property.”

Flax says that in five years’ time he would not be surprised if there were at least 10 South African listed property companies with market capitalisations of R20bn each.

He expects the trend of consolidation to become even more entrenched as the listed property sector seeks foreign investment.

At the moment there are about 25 listed property companies and funds on the JSE.

A criticism of these counters is that there are too many smaller counters to attract any significant foreign investment.

A smaller sector, but with companies with large market capitalisations, would make the sector more tradable and attractive to global investors.

Macquarie First South property analyst Leon Allison says he has “been saying for a while there needs to be more consolidation”.

“In other words, you would have fewer but larger and more tradable stocks. If you compare our sector to other listed property sectors in the rest of the world, we have too many stocks, given the overall size and market capitalisation of the sector,” says Allison.

The South African listed property sector has a market capitalisation of about R87bn.

Allison says he also expects the trend of consolidation to further entrench itself in the listed property sector.