Property still on the up
Sector is outperforming despite tough conditions
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.