Guest article by Garreth Elston, Golden Section
February 10 2025 22:30
Garreth Elston – Golden Section
The SA listed property index fell 2.89% in January, reversing December’s gain and highlighting the fact that despite being thousands of miles from the world’s touchpoints South Africa’s markets cannot escape global uncertainty and its negative impact. There were only eleven listed property companies up out of forty-five. Exemplar, a township and rural focussed retail Reit (and one of our top picks to offset market volatility due to its daily necessity and convenience focus) delivered a very solid 14.58% return. The majority of large SA REITs disappointed, with only NEPI ending positively.
While early market updates provided in the month indicate that most companies had a solid fourth quarter, investors appear to be taking a risk off approach to listed property.
As was widely expected, the USA’s Federal Reserve kept rates steady at its first meeting in 2025, and Open Market Committee decided to leave the benchmark federal-funds rate at its current range of around 4.3%following three consecutive rate cuts beginning in September 2024. Fed Chair Jerome Powell stated that “we do not need to be in a hurry to adjust our policy stance.”
It therefore seems likely, barring a Trump driven major event) that the Fed is likely to once again hold steady at its next meeting in March. As expected, President Trump slammed the Fed and Powell and continued his meddling and demands for lower rates. The markets certainly hope that the USA doesn’t attempt an Erdoğan level of meddling.
The day after the Fed announcement, the South African Reserve Bank Monetary Policy Committee (MPC) cut interest rates by 25 basis points, citing easing inflation but maintained a hawkish stance. The decision was split, with two of the six members of the MPC voting for an unchanged policy rate. The SARB stated that it is optimistic about long-term growth prospects, expecting GDP growth to reach 2% by 2027, supported by a gradual rebalancing of the economy, higher investment levels particularly in infrastructure and network industries and recovery in mining and manufacturing output. The next MPC meeting is scheduled for March 20th 2025.
The cut will assist listed property companies as borrowing costs decrease, but the concern remains that the SARB is underestimating potential growth and remains behind the curve on cutting rates to a more practical level.
Adding in the uncertainty impacts from the bizarre first week of the Trump administration and its potential ongoing impact on South Africa, coupled to the MPC’s hawkishness, it would appear that the probability of a rate cut in March has dropped to 40%. We are not convinced that SA will see much more in terms of interest rate cuts considering the current global economic situation. Without some meaningful positive developments, expect February to be a bit of a bumpy month for listed real estate. Strap in, it’s going to be a bumpy ride with some surprises.
alistair@propertyflash.co.za
