SA Property – what now?

There appears to be  a lot of concern around property funds recently as a result of the negative performance coming through particularly over the past few months. I spoke to Nesi Chetty, fund manager of the Momentum Property Fund, to gauge his thoughts on the sector. Below is just a few points to consider.

Reasons to Stay Invested in Property (Avoid the Noise in the Short Term, Bank on longer term outperformance)

  • The biggest share in the      sector Growthpoint has R 2.4bn of cash that it is sitting on. This was      raised a few months back before property started underperforming. Once      Growthpoint deploys that cash into higher yielding acquisitions (pretty      soon) will see the sector move up
  • Property      underperformance has been because bonds yields have sold off as well. As a      house we  see SA bond yields peaking around 9.5%. They currently     around 8.4%.  So maybe another 1% up. Property distribution growth is      still okay, companies are delivering on their distribution guidance. This      is positive for the sector. Resilient recent results, distribution up 12%.
  • Big new listing in Q4 –      Attebury property fund. Likely to push the property sector high. Attebury      are the pioneers in property development in SA. They are doing the highly      successful Waterfall Mall and Mall of Africa. Portfolio size around R      12bn. If investors switch out now they miss the uptick in the property     index because of this new entrant.
  • Property has been best      performing investment over the last ten years. This is short term noise in      the market, and  is regarding what will happen in the US – If the US      ends quantitative easing – our bonds have started to price that in      already
  • There are some exciting      new property developments coming on in the next 12 months – Menlyn main is      a thriving new node, Waterfall will be another hub. These properties all      come onstream in the next 2 years.
  • Currently property      yields in excess of 7.2% (beating cash). Selling property to put into cash      is probably going to destroy value.

 

Further:

Most companies are converting to REIT status by Feb 2014 – this will mean

1)      Foreigners will invest quite a lot in SA property (Driving up Stock Prices) – REITS now become comparable with global property

2)      There will be an NAV uplift in the portfolio since the deferred tax liabilities falls away on conversion

 

Dealers are also mentioning that a number of asset managers are starting to show renewed interest in property as at these yields property is starting to offer good value again.

 

*Information above supplied by Shaun Grinffin from Momentum Collective Investments*

Leave a Reply