THE South African commercial property sector has been innovative and adaptive over the past decade and is expected to perform even better over the next 10 years thanks to its consistent income growth, driven by a combination of economic growth and declining vacancies, property pundits said this week.
They said listed property offered better earnings visibility and certainty due to leases signed for three to four years, on average, and with rents escalating about eight percent a year.
Listed property companies pay out virtually all their profits to investors as distributions.
With the sector adopting the internationally recognised real estate investment trust (Reit) structure, the next decade is likely to prove it even more resilient.
Figures from the Investment Property Databank (IPD) show that over the past 10 years, ungeared investment property in South Africa, both listed and unlisted, delivered compound total returns — income plus capital growth — of 407%, an investment performance well ahead of that of bonds, which delivered total returns of 208%, and cash, with 135%.
Sam Leon, CEO of the Investec Property Fund, said on Wednesday that listed property had come “of age” in the past couple of years.
“Listed property as an asset is now looked at by investment specialists, and most hedge funds have a property specialist,” he said.
The listed property sector has grown from less than one percent of the JSE all-share index in 2002 to more than three percent this year. The sector now has a market capitalisation of more than R160bn.
Stan Garrun, MD of IPD SA, said the past decade had shown the South African commercial property sector to be innovative and adaptive.
“We have never been at a more important crossroad as countries around the world reel from European contagion, having just emerged from the property crash of 2008-09. Elsewhere, political upheaval and economic recession continue to negatively affect the markets,” Mr Garrun said.
“Relatively speaking, South Africa was able to avoid the ill effects of many of these global trends. We embark on the next decade as a resilient and well-structured sector, though not without challenge.”
Property economist Francois Viruly said that in the past 10 years the South African property market had experienced the strongest boom since the 1960s.
“Commercial property investors ventured into new geographic areas such as South African townships and, more recently, across the African continent. The sector successfully adapted to a difficult financial environment from the global financial crises,” Mr Viruly said.
Keillen Ndlovu, head of property funds at Stanlib, said the listed property sector changed from an “untouched and unloved” asset class in 2002 into the most respected asset class this year.
The adoption in South Africa of the Reit structure for financial regulation and tax purposes, due early next year, is expected to lift foreign investment into the local listed property sector from a low of 3%.
The framework brings the existing local property loan stock and property unit trust structures in line with each other and with global structures.
mokopanelet@bdfm.co.za