Listed prop­erty vs equities

RISKSA Magazine - - CONTENTS - Neesa Mood­ley- Isaacs

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.

REIT leg­is­la­tion

The Real Es­tate In­vest­ment Trust ( REIT) leg­is­la­tion be­came ef­fec­tive on 1 May 2013,

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