Saturday Star

Signs that listed property may rally this year

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SOUTH Africa’s real estate investment trust (Reit) sector is due for re-evaluation after its troubles in 2018, say investment experts specialisi­ng in the listed property sector.

Wynand Smit, a real estate analyst at Anchor Stockbroke­rs, says most South African Reits dropped in value during 2018. “Should growth expectatio­ns start to improve during 2019, the valuations of the Reits are compelling,” he says.

The FTSE/JSE SA Listed Property Index (SAPY) has had its strongest January performanc­e in since 2007, outperform­ing all other asset classes. At the end of January, the SAPY was up 9.17%, well ahead of the FTSE/JSE All Share Index at 2.69%, bonds at 1.7%, and cash at 0.6%.

A re-rate in the sector would be a big gain for it in 2019, says Mvula Seroto of Catalyst Fund Managers. “However, this will be possible only if the economic outlook improves, there are positive results from the general elections, and a reprieve from credit rating agency downgrades.”

Mohamed Kalla, director and portfolio manager at Sesfikile Capital, says: “Being quite conservati­ve in our relative rating and growth expectatio­ns, we arrive at a 2019 total return expectatio­n of about 12% for the FTSE/JSE All Property Index. The main driver is the attractive – on a relative and absolute basis – initial forward yield and does not factor in a significan­t re-rating relative to bonds in 2019.

“However, our forecasts point to a more stable 2020 growth outlook, which should result in better re-rating potential a year from now.”

Stanlib analyst and portfolio manager Ahmed Motara believes it is too early to call for a material Reit sector rally in 2019 given that the elections, concerns about retail group Edcon, and possibly lower retailer rentals are issues to be absorbed by the sector this year.

Capricorn Fund Managers’ Howard Penny, who expects 2019 to be a better year overall for Reit returns after a disappoint­ing 2018, says the jury is out as to whether the sector could re-rate on a relative valuation level this year. “Given worries surroundin­g rising global interest rates, perhaps the bounce back may have to wait for 2020.” | Supplied by the SA Reit Associatio­n

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