Listed property disappoints

Listed property, a front-runner asset class on the JSE in recent years, has emerged as a laggard on the back of growing volatility in share prices.

The SA Listed Property Index (Sapy), which makes up the JSE’s 20 largest real estate stocks, has barely kept up with the total returns posted by ten-year government bonds, the JSE All Share index (Alsi) and cash over the past six and 12 months.

Property stocks are down 3.3% in the year to June 30, with the Sapy Index delivering paltry total returns (income and capital growth) of 2.29%.

The sell down in property stocks is not entirely surprising given the large swings in the rand exchange rate and bond yields, which have been impacted by the worrying state of the economy and increasing political uncertainty.

This slow performance can also be attributed to the sector’s growing exposure to offshore markets in recent years, said Catalyst Fund Managers investment manager Paul Duncan.

Over the last two years, no fewer than 12 offshore property companies listed on the JSE while SA-focused property companies aggressively concluded international deals.

Now that the rand is showing relative strength to the US dollar, Duncan believes that several property companies might be hit hard.

Offshore counters, which are also part of the Sapy Index, are more sensitive to rand exchange rate movements than their SA-focused property counterparts and a strong rand negatively impacts total returns and share prices.

So, is there still value in offshore property stocks? Investment analyst at Metope Investment Managers Kelly Hook said Metope finds value in stocks that offer strong and sustainable income growth and have a competitive advantage in the markets they operate in.