Property is year’s worst performer
The R320bn listed property index is the worst-performing investment class in SA so far in 2020, according to a report by Catalyst Fund Managers.
The R320bn listed property index is the worst-performing investment class in SA so far in 2020, according to a report by Catalyst Fund Managers.
The index made a total loss of 44.52% in the first four months of the year.
This compares dismally with equities, which achieved a total loss of 10.39%, while bonds suffered a negative 5.14% and cash returned a positive 2.22%.
A number of landlords were battling to raise their rental rates at the beginning of 2020 as tenants struggled to grow their businesses in a weak economy. The lockdown imposed by the government at the end of March as a measure to curb the Covid19 outbreak has worsened the situation.
Tenants who do not sell essential goods and services and have been unable to operate during the lockdown are seeking rental relief.
Catalyst said this meant the sector’s overall return for 2020 would weaken. “We have adjusted our model assumptions to reflect short-term rental discounts and concessions and higher vacancies while also adjusting our long-term rentalgrowth forecasts and increased our required rate of returns where appropriate,” it said.
“At this stage we expect many funds to reduce, defer or not pay dividends to meet shortterm cash flow requirements. This will be driven by the ability or affordability to pay and potential rules relaxation by regulators regarding tax and Reit [real estate investment trust] status.”
Listed property could be in for more pain, at least in the short to medium term.
“The sector is trading at a significant discount to its latest net asset value, which indicates that the market is pricing in a material decline in direct property valuations. However, the longterm effect remains uncertain and would be determined by the economic consequence of the lockdown and the changes to future demand and supply fundamentals,” Catalyst said.
But it said the Reserve Bank’s continued reduction of rates would bring relief to consumers and businesses.