January 6 2024
Last year (2023) was very messy and quite miserable for many people working in South African commercial real estate, especially listed funds who had seen their share prices drop steadily and, in some cases, plummet. But the sector overall bounced back in the last two months of 2023 as there was global confidence that interest rates would ease in 2024.
Keillen Ndlovu, an independent analyst explains that load-shedding and municipal charges weighed heavily on SA’s listed property sector in 2023. Nevertheless, Mohamed Kalla who is an executive director at Sesfikile Capital says the sector showed its mettle.
“An unstoppable rally over the last two months of the year pushed SA listed property returns into double-digits, with the All Property Index (ALPI) topping the leaderboard as the best performing asset class in SA for 2023. This one didn’t come easy,” Kalla says.
The ALPI returned 10.7% including share price growth and dividends. It outpaced equities which returned 9%, government bonds with 9.7% and cash with 8%.
It’s pleasing that listed property is making a comeback after some lean years where it lost numerous fans. The FTSE/JSE SA Listed Property Index (Sapy) had been a star performer compared with other asset classes since its formation. It ran hard from 2014 to 2016 during a listings and capital raise boom. But in 2017 and 2018 the sector lost many investors and value amid the fallout from the Resilient stable of companies scandal. The sector bounced back in 2019 before taking a massive hit from the effects of the Covid-19 pandemic and the economic lockdowns in 2020 and 2021. In comparison with this, 2023 looks solid and investors will be hungry for even better in 2024; especially for a boost in dividends from many listed real estate investment trusts (Reits).
One would expect some struggling funds such as government-focused landlord Delta Property Fund and Fourways Shopping Mall owner Accelerate Property Fund to delist or be taken over in 2024.
Ndlovu says fund managers don’t necessarily view listed property counters as cheap and it can be volatile. It will take time to win over investors who have preferred to buy equity stocks in recent years. He is optimistic that interest rates will fall, economic growth will improve and vacancies could ease a bit in offices. SA is moving closer to the use of renewable energy sources which will pose as an alternative to Eskom and lead to less loadshedding. Large landlords have invested in solar power for example and will eventually be able to sell excess power into the national grid. The sector also needs increases in municipal rates and taxes to be reasonable.
Unfortunately the negative effects of higher interest rates on earnings could be felt for two more years.
alistair@propertyflash.co.za
