Is that really life we see in the JSE listed property index?
After the worst annual performance in more than two decades, the sector beat all comers in January
The R600bn JSE listed property index is outperforming all other major asset classes having enjoyed its strongest January in more than a decade.
But this sudden boost for the sector, which lost investors 25.26% (based on share price declines and dividends) in 2018, might not last. This performance was the worst in more than two decades.
The sector was held back largely by the performance of four companies within the Resilient stable, which all came under pressure in January 2018 following a R120bn selloff of their shares. They had accounted for 40% of the sector. Some asset managers and hedge funds released reports wherein they accused Resilient of market manipulation, insider trading and inflating profits.
Fund managers say that overall the sector will be driven by income growth while real estate companies are wary of investing in a sluggish economy, which has been further hampered by a volatile rand and political uncertainty.
The index, which includes the top 20 liquid real estate companies by market capitalisation with a primary listing on the JSE, was up 9.17% year to date by Thursday’s close, outperforming the JSE Top 40 index which was up about 2.69%, bonds which were up 1.7% and cash which had gained 0.6%.
The head of listed property funds at Stanlib, Keillen Ndlovu, said this January performance had been the best January for listed property in more than a decade. Its previous best January was in 2007 when the index gained 8.479%, he said.
Ndlovu said the sector had started to recover from a weak base. It lost 31.87% in 2018 without including dividends.
“The recent improvement in share prices is more of a correction as opposed to an improving property environment. Listed property is recovering off a low and volatile base from 2018,” he said.
Ndlovu said January’s momentum might not be maintained but the listed property sector’s sudden recovery in 2019 was welcomed and it was expected to reward investors with income-led growth this year. This was because of a lack of new capital spending by listed real estate companies.
Stanlib’s team was forecasting total returns of between 9% and 10% over the next twelve months.
“Total returns going forward will be driven by income as opposed to capital,” he said.
The team expected distribution growth to slow down to between 3% and 4% over the next 12 months.
“This is a reasonable outcome in the current challenging environment. Retail centre and office block owners are struggling to achieve rental growth due to oversupply as well as a weaker economic growth outlook,” said Ndlovu.
Evan Robins, a portfolio manager at Old Mutual Investment Group, said political uncertainty in the run up to national elections was discouraging some property companies from investing. But he said property landlords would most likely spend capital on upgrading existing assets.
Estienne de Klerk, CEO of Growthpoint Properties, which owns about R80bn of SA property assets, said the group was revamping a number of its malls for the first time in a few years.
Emira Property Fund’s CEO Geoff Jennett said “commercial real estate companies had been through far worse” operating environments.
“It’s extremely tough out there. The economy is barely growing and we aren’t sure if Cyril Ramaphosa will be president after the election and if he isn’t that may create uncertainty. We also don’t know if the president will implement business-friendly policies soon after being elected. But we have been through worse. 1994 was a much less politically secure time for businesses,” he said.