Local Listed property year-to-date returns jumps 18.8%
The listed property sector continues to outperform the other asset classes on the JSE recording returns of over 18.8% for the year to date, according to Keillen Ndlovu, the head of listed-property funds at Stanlib.
The local listed-property sector has delivered returns above expectations so far this year, thanks to a strong bond market, solid company results and increased demand for listed property stocks.
Mr Ndlovu said on Monday 6th April that listed property returns were 18.8% for the year to date, boosted partly by a "strong" bond market. "The search for yield seems to be continuing."
"This year has been quite unusual though. The rand has weakened and bond yields have strengthened — yields have gone down and capital values have gone up. Normally, when the rand weakens, bond yields weaken — yields move up and capital values fall," he said.
Also contributing to the returns, which had "surprised on the upside", Mr Ndlovu said were the results from listed property companies and the outlook so far this year, which "has been better than expected".
Examples included Octodec Properties, which delivered income growth of 10.5% versus 7% market expectations. Similar growth was expected for the remainder of the year for Octodec.
"Redefine Properties delivered numbers on the upper range of their guidance and came out with a positive outlook", while Delta Property Fund met its pre-listing guidance "and have a bullish income growth outlook of 20% for the next two years".
Also, there had been increased demand for listed-property stocks this year, an example of which was Stanlib having received "strong inflows from both retail and institutional clients".
For the next two years, Stanlib’s base case for annualised total returns from the sector is 8.7% a year. The bullish outlook is 12.4% a year, while a more bearish outlook places total returns at 5.3% a year. "The major risk for listed-property prices is bond yields moving up."
Mr Ndlovu said listed property was now trading at a one-year forward yield of 6.2% "which is in line with 10-year bond yields at 6.2%".
Ian Anderson, chief investment officer at Grindrod Asset Management, said on Monday that the listed sector’s strong performance for the year to date was driven by interest rate expectations.
"It is becoming increasingly clear that investors are actively seeking out securities and asset classes that offer an acceptable level of income, given the fact that official interest rates are expected to stay lower for longer," he said.
The forward yield on the listed-property sector had now declined to 6%, with distributions forecast to grow at about 7.3% a year over the next three years, he said. The yield on listed property was about 25 basis points lower than the yield on a 10-year government bond.
"This makes listed property relatively attractive given the above-inflation growth in distributions expected from the sector over the medium term," Mr Anderson said.