Category: Listed Property Fund (3)

A closer look at listed property and buy-to-let residential property investments.
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The year 2016 has seen volatile financial markets globally with the commodity cycle still in recovery mode, economic growth in many countries still faltering and the roller-coaster political landscape.

Arguably, investors cannot be blamed for their conservative appetite for risk as finding investment gems is increasingly becoming difficult when the immediate future looks uncertain.

At a time when equities, bond and currency markets are under pressure, market watchers continue to find value in real estate markets during tough times – whether hitching their  wagons to physical properties or listed property stocks.

On the latter, investors would be normally investing in a property company, which owns physical property assets and collects rental income from its tenants that can be distributed as dividends payouts.

“That’s why listed property is much more defensive than any other sector on the JSE,” said Stanlib’s head of listed property funds Keillen Ndlovu at the Liberty Retire Well Masterclass last week.

Although SA’s listed property sector did not initially pique the interest of many investors, who often had a bias toward equities, the sector has since courted a strong following.

Listed property firmly outperformed equities (JSE All Share Index), bonds (ten-year government bond) and cash over the past ten years in terms of total returns. This has since firmly entrenched the asset class as a bellwether.

The sector has also seen a flurry of JSE listings – from having only 20 property companies on the bourse five years ago to 44-odd companies that invest in student accommodation, shopping malls, office, industrial and residential properties.

Ndlovu said the listings have offered investors choice as SA’s property market has opened up to offshore markets, giving investors access to hard-currency earnings.

Underscoring this is figures from Stanlib which reveal that ten years ago the sector had no exposure to offshore markets and so far this year, 37% of earnings derive from markets including the UK, Australia, Central and Eastern Europe. “If you invest in some SA-focused companies, you are also getting exposure to offshore markets,” he explained.

Having listed property in your investment portfolio helps to boost returns. For example, Ndlovu’s figures show that if your portfolio is 60% invested in equities, 30% in bonds and 10% in cash over 15 years – you would have achieved a 13.7% annualised total return.

“If you add 5% of property exposure, you get a total annualised return of 14%. Add another 5%, you get 14.6% and add another 5% you get as much as 15% in total returns. But you have to focus more on the long-term.”

He believes that listed property allocations in an investment portfolio should be 10% to 20%. But this depends on your risk profile.

Despite SA’s worrying state of the economy and the pesky rand, SA’s listed property sector is achieving an average forward yield of 7% and property companies are expected to post inflation-beating dividend growth of 8% average for the next 12 months.

Investment property

Residential buy-to-let properties continue to be beset by humdrum rental growth and property returns that have dimmed the allure of owning a rental property as an investment.

Latest figures from credit bureau Tenant Profile Network (TPN) and FNB show a rise in buy-to-let rental yields since two years ago.

National gross rental yields (before the rental properties’ operating costs such as electricity, water, maintenance, rates and taxes are accounted for) marginally rose to 8.6% in the second quarter of 2016 from 8.5% in the first quarter.

Rental yields are a key metric for a rental property’s return on investment, expressed as rental income over costs associated with the property.

To make matters worse for landlords, the upkeep costs of a rental property continue to rise faster than rental growth, eroding returns.

Finding value in the rental market is fast-becoming area specific.  For example, if landlords are looking for better rental yields, TPN and FNB figures suggest that they might have better luck Johannesburg (9.51%) than in Cape Town (7.71%).

Despite tenants facing the sustained rise in living costs, interest rates, and unemployment, TPN MD Michelle Dickens said the national rental payments trend is still stable.

Dickens said 66% of tenants nationally and across all rental value brackets are paying rent on time and in full; 6% are in the seven-day grace period; 10% are paying their rent partially, and nearly 6% of tenants are not paying rent at all.

The best performing rental value bracket is the R3 000/month to R7 000/month bracket, which makes up 55% of the rental market share.  The below R3 000/month is performing badly due to affordability issues.

“Investment property is still bricks and mortar, and you are still having capital growth albeit it’s not great at the moment. But ultimately it’s about the management of that property,” she added.

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Cape Industrial Property was recently awarded the Project Groundbreaker award by Growthpoint Properties.
Project GroundBreaker is the Industrial Property Award that forms part of Project Millionaire, Growthpoint’s broker incentive program.

Cape Industrial Property

Cape Industrial Property

Cape Industrial Property Managed to win the Western Cape regional prize achieving the highest value for leases concluded over the past 12 months for warehouse space in the Growthpoint Industrial Property Sector.

Cape Industrial also managed a second place nationally.

The award seremony was held at the Barnyard Theatre in Rivonia.

green warehousing

Property groups are shifting to clean industrial properties focussed on light manufacturing, warehousing and distribution as harder manufacturing struggles, SA Commercial Prop News has learnt.

This is while more and more of SA’s economic output comes out of services and less out of hard line manufacturing.

The likes of SA’s biggest industrial property owner, Capital Property Fund, believe heavy manufacturing presents an unattractive business case.

“There is huge pressure on SA’s manufacturing sector. Capital sold out of heavy manufacturing properties some time ago and we don’t see signs that suggest we should go back to that space,” Executive Director at Capital Property Group, Andrew Teixeira says.

Capital’s industrial portfolio is centred on warehouses and distribution centres but it also includes light manufacturing factories.

“Heavy manufacturing is commodity based and can happen in many countries other than SA. You have to be making a niche product to do well with it in this country,” Mr Teixeira says.

The worst month for manufacturing for this year to date was July.

Manufacturing production fell 7.9% year on year in July, suffering its biggest contraction since October 2009, after barely increasing 0.2% in June, according to Statistics SA data.

The output was dented by a four-week strike by steel and engineering workers, largely seeing motor vehicle production cease or be scaled down at various plants.

Economists are not optimistic about how manufacturing will perform next year.

“Manufacturing will probably continue to struggle. In 2004 it accounted for 19% of the economy. In 2013 it accounted for 11%. Labour has priced goods and services to levels which are uncompetitive with SA’s emerging market peers. Manufacturing is in serious trouble and it does not have much of a future in SA,” Meganomics economist Colen Garrow says.

He is concerned that the euro zone, SA’s biggest export destination will re-enter recession.

“Russia’s attempts to re Balkanize the Ukraine will likely push the Euro zone close to recession again. These countries make up a constellation of 18 economies, most of which are destination markets for SA’s exports,” Garrow says.

Nevertheless, Teixeira says that Capital’s warehousing and distribution properties helped the group make double digit income growth in the six months to June.

Apart from the rand weakness benefit that flowed from the Capital’s investments in offshore funds, New Europe Property Investments and Rockcastle Global Real Estate Company, Capital’s better distribution growth was buoyed by the sale of non-core office buildings and lower vacancies in the industrial buildings.

Vacancies decreased from 5.1% in December to 4.2% in June.

Growthpoint Properties’ divisional director for its industrial portfolio, Engelbert Binedell says industrial property is often misunderstood as a part of property. Growthpoint has about R9.3bn worth of industrial properties which represents about 17% of the group’s domestic assets.

“Retail and offices are usually seen as being sexier. Still there are conditions developing to show that industrial property has an exciting future in SA,” Binedell says.

While Gauteng remains the hub for the industrial property class, upgrades to port infrastructure mean warehouses by the coast are becoming attractive.

Binedell says he expects Cape Town and Durban to face a surge in demand from logistics groups in the next few years.

“Infrastructure is being rolled out at our ports. I am always amazed when I stand on Umhlanga Ridge and see ships coming in.

“The daily number of ships docking has clearly increased this year. The industrial sector is healthy at Cape Town, Durban and Port Elizabeth and I think a massive pick up is on its way,” Binedell says.

CEO Andrea Taverna-Turisan listed Equites, an industry focussed fund this year.

He says in about five years, online buying will boom in SA and this will create large demand for warehousing.

“Companies are going to need to store not only fast-moving consumer goods but other goods. SA may have a shopping mall culture but accessibility to online shopping will see people buying goods off the Internet,” he says.

He also says that industrial property is gaining a lot of interest from the listed property funds when it used to be more popular with many unlisted funds.

“When we listed, industrial property just was not that popular. It is becoming popular now with not only unlisted funds but listed Reits (Real Estate Investment Trusts) trying to get their hands on industrial assets. It seems the improved infrastructure by Durban’s ports and the increasing business activity in Cape Town; are among the key drivers,” he says.

Stanlib’s head of listed property funds, Keillen Ndlovu says industrial property has strong fundamentals in SA, which is part of the reason why his funds have stakes in the likes of Capital Property Fund and SA Corporate Real Estate Fund.

These funds’ distribution and warehousing assets are attractive, according to Ndlovu

“Yes, we like the industrial space. The fundamentals are good. Rental growth has been good with 7% growth in the sector in 2013.

“Vacancies are low across all types of industrial property. In fact, than industrial sector has lower vacancies than the retail and office sectors,” he says.

Ndlvou highlights the improving qualities of coastal industrial properties, especially those in KwaZulu Natal.

“KwaZulu Natal has generally been a strong node and commands higher average rents than other regions. The fact there are plans to expand the Durban port are a potential big positive going forward,” he says.

According to a recent report by the South African Property Owners’ Association, Cape Town area has lower vacancies than all other industrial regions do.

 

 

Original Article – SA Commercial Property News

http://www.sacommercialpropnews.co.za/property-types/commercial-industrial-property/7065-industrial-property-has-to-be-nimble.html