Prop­erty still on the up

Sec­tor is out­per­form­ing de­spite tough con­di­tions

Weekend Witness - - Medical File -

THE listed prop­erty sec­tor con­tin­ues to out­perf orm, in spit e of pr op­erty funds op­er­at­ing in a chal­leng­ing en­vi­ron­ment.

And in spite of a less than rosy eco­nomic out­look, Old Mu­tual In vest­ment Group chief economist Rian le Roux said ther e ar e some signs the econ­omy may impr ove o ver time.

Evan Robins, listed prop­erty man­ager f or Old Mu­tual In vest­ment Group’s M acroSo­lu­tions bou­tique, said the out­per­for­mance of the sec­tor is not lik ely t o be sus tain­able.

Eco­nomic head­winds are likely to dampen, but not de­rail the div­i­dend growth of listed prop­erty com­pa­nies, he said.

How­ever, over the long run, listed prop­erty is s till ex­pected to pro­vide a good r eturn, he added in a s tate­ment.

Pre­sent­ing at Old Mu­tual In vest­ment Group’s fourth quar­terly me­dia brief­ing re­cently, Robins said that it is only since Au­gust that prop­erty has per­formed sig­nif­i­cantl y, and this surge is pri­maril y due t o the s trong per­for­mance of the bond mar ket.

“From Au­gust un­til the end of Oc­to­ber, the S A Listed Prop­erty In­dex [SAPY] pr ovided a 12, 4% t otal r eturn, out­per­form­ing gen­eral eq­ui­ties in the FTSE/JSE All Share (mi­nus two per­cent),” he said.

“This was largely be­cause the bond mar­ket was strong dur­ing the pe­riod, with yields f alling.

“Prop­er­ties r at­ing t o bonds changed lit­tle over this pe­riod de­spite good pr op­erty r esults.

“The up­swing was also helped b y growth in r en­tals and the di vi­dends paid b y the un­der ly­ing c om­pa­nies. Many com­pa­nies re­leased re­sults and th­ese were as good as, or bet­ter than, ex­pec­ta­tions, with a ve­r­age dou­bledigit dis tri­b­u­tion per unit [DP U] growth and no sub­stan­tial company grow­ing div­i­dends by less than a mar­gin abo ve in­fla­tion.”

Robins be­lieves that risk in the sec­tor has been, for the most, un­der­es­ti­mated.

“From a long­term

per­spec­tive, the re­turn out­look r emains s trong, but the journe y c ould be bump y.

“Con­sid­er­ing the head winds ... a weak­ened c on­sumer and an emb at­tled econ­omy, fund per­for­mance has been ex­cel­lent, but th­ese head­winds will need to soften if this per­for­mance is to con­tinue, es­pe­cially with re­gard to the c on­sumer,” he said.

Le Roux, how­ever, painted a marginally up­beat ec onomic pic­ture for the short term, but agreed that over the longer term the out­look is not as en­cour­ag­ing.

“The out­look for 2015 is not par­tic­u­larly rosy, in the ab­sence of mar­ket­friendly re­forms, as in­ter­est rates have to rise fur­ther and fis­cal polic y will be tight ened.

“The fall in oil price and im­proved in­fla­tion out­look r educe the risk of the South African Re­serve Bank be­ing forced to tighten pol­icy ag­gres­sively,” said Le R oux.

He also w arned ag ainst e xces­sive pes­simism as some moder ate t ail winds and r eforms do e xist.

“We are see­ing a more com­pet­i­tive rand as w ell as a mor e sup­porti ve global en vi­ron­ment.

“Mod­er­ate r eac­cel­er­a­tion in g overn­ment’s infr as­truc­ture spend­ing and the un­block­ing of struc­tural con­straints (such as elec­tric­ity and trans­port), as well as a bet­ter­func­tion­ing pub­lic­ser­vice sys­tem and the delever­ag­ing of con­sumer debt, are all en­cour­ag­ing f ac­tors f or South Africa,” said Le R oux.

— Business Ed­i­tor.


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