Listed property vs equities
Ian Anderson, chief investment officer at Grindrod Asset Management, says South African investors with the fortitude to withstand some significant bouts of market volatility have been rewarded with generous returns above inflation over the last decade. “A simple buy- and- hold strategy in any of the major asset classes would have earned investors annualised real returns of four per cent, 15 per cent and 19 per cent in bonds, equity and listed property respectively over a 10- year period to the end of May this year,” he says. Anderson points out that the return on listed property, in particular, has been nothing short of spectacular, with investors perhaps becoming over confident after the sector delivered a staggering 36 per cent during the course of last year. The property bull run continued unabated into 2013, with the sector delivering a further 17 per cent in the first four months of the year. May, however, came as a rude awakening to many investors with the sector clawing back 15 per cent of 2013’ s returns in a matter of weeks and posting the biggest decline since January 2008. In terms of comparing the performance of listed property against equities, the FTSE- JSE SA Listed Property index ( SAPY) returned 27 per cent over the last 12 months to the end of May 2013 and 22.2 per cent a year for the last three years. This is broadly in line with the FTSE- JSE All Share Index ( ALSI) at 30.7 per cent and 19.1 per cent respectively. However, over five years, the SAPY has delivered 22.7 per cent a year compared to only 8.9 per cent a year for the ALSI.
Drivers of recent returns
Anderson points out that between the end of May last year and the end of April this year, South Africa’s listed property sector returned 43.7 per cent. “Although the sector produced inflation- beating distribution growth despite weaker property fundamentals and a slowing economy, this doesn’t fully explain the strong rally in the listed property sector, although it certainly contributed to an improvement in sentiment,” he says. According to Anderson, the rally was sparked by a surprise cut in interest rates in July 2012 which led to a drop in bond yields and made the higher yields of the listed property sector even more attractive. “Listed property prices started rising to restore the spread in yields. Bond yields have continued to decline since then and listed property yields have followed. However, by the end of April this year, the one- year forward yield on listed property was more than 50 basis points below the yield on a 10- year government bond. This suggests there was a further factor influencing the recent rally,” he says.
The Real Estate Investment Trust ( REIT) legislation became effective on 1 May 2013,