The SA Listed Property Index has lost 14.1%
month-to-date. This includes Friday’s 5.3%
loss.
Source: INet-Bridge
The weakness was first driven by Growthpoint’s R2.5bn
equity raise in the week prior to last
week. At the time, we thought the listed property market will
normalise about a day or two later, after most listed property portfolio managers
had raised enough cash (by selling other listed property stocks) to fund the
deal.
Unfortunately, things got worse. Some market analysts
expected an interest rate cut and that did not happen. The GDP numbers came out
worse than expected. The trade deficit was bigger than market consensus. Foreigners
sold off our bonds. The rand weakened and bond yields moved up.
When bond yields move up, listed property
prices fall. The opposite is true. In order words, the weakness in listed
property prices has been driven by a weaker bond market.
Listed property prices have changed but the story
hasn’t - the underlying physical property fundamentals remain unchanged. Our
income growth outlook numbers remain unchanged. As we always say, income is
stable however capital can be volatile.
As a result of the recent weakness in price, the one
year forward yield (income) for the listed property sector has risen, from 6.1%
earlier in the month, to just over 7.2% i.e. listed property yields have risen
(prices fallen) in line with the bond yields (which have moved 100bps, from
6.1% to about 7.1%).
In summary the property fundamentals remain unchanged
with a strong forward yield. So your income is stable however capital can
be volatile.
