Property moves up despite weak rand, bond rates

South Africa’s listed property sector has started 2013 by climbing 4% in just the first three weeks of trading. The sector climbed 0.60% during the week ending 25 January 2013, despite significant rand weakness and an increase in bond yields.

There has been little sector-specific news so far this year, although a Bloomberg report speculated that Growthpoint would increase its bid for Fountainhead. Among the heavyweights, Resilient gained 2.7% and Hyprop rose 1.6%, while Growthpoint’s share price declined by 0.3%.

After the sector gained almost 36% last year, many fund managers and market commentators expect a pullback in prices this year. The most obvious catalyst for a pullback would be an increase in official interest rates. This appears unlikely this year, despite upward pressure on consumer inflation.

Investors need to be mindful of the introduction of Real Estate Investment Trust (REIT) legislation later this year, which could result in increased demand from foreign investors when the likes of Growthpoint, Redefine, Hyprop and Resilient make their way into global REIT indices for the first time.

The current income yield and future income growth prospects suggest the sector can deliver returns of between 12% and 15% per annum in the long-term. Short-term performance will be driven by increased/decreased demand for the asset class from foreign investors and large local institutions and the future direction of official interest rates in South Africa.

Top 5 performers last week

Ascension B 13.95%
Arrowhead B 4.96%
Resilient 2.65%
Vunani Prop 2.56%
Arrowhead A 2.25%

Source: Grindrod Asset Management Bottom 5 performers last week

Rebosis -0.43%
Vukile -0.68%
Capital -0.96%
Premium -2.76%
Ascension A -9.38%

Source: Grindrod Asset Management

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