Consolidation the next step in S.Africa’s property market - CNBC Africa

Consolidation the next step in S.Africa’s property market

Southern Africa

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A row of houses. PHOTO: Getty Images

South Africa’s listed property sector is set to undergo consolidation in 2014 as a means of improving the market.

“There’s been a number of companies that have listed over the past two years, some of them very small, market caps of between a billion and two billion rand, so they don’t have the economies of scale right now,” Standard Bank property portfolio manager Ndabe Mkhize told CNBC Africa.

“They did have a niche that they were playing [in], especially when people were going into the market with things like government properties or those different portfolios. When there are no more opportunities to be had, the best thing to actually do is to consolidate.”

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South Africa’s property sector saw various listings in 2013 and historically, listings booms are followed by consolidation.

Mkhize added that some companies that have consolidated smaller companies now have better teams and ratings, and this has strengthened their plans to stay in the property market for the long haul.

“In our view, that’s going to be good for improving the liquidity as well as giving good economics of scale,” he said.

The introduction of the Real Estate Investment Trust (REIT) system last year to the market has been positive, which has since helped improve net asset values of properties.

The REIT system now also has more tax certainty than the previous system did, and has grabbed the attention of potential overseas investors.

Consolidation could however mean less competition in the country’s property space due to fewer players, but Mkhize believes the sector will still have vibrant competition.

“[Consolidation] will make those other smaller companies able to compete, because right now it’s just David and Goliath, but what’s different is that Goliath keeps on winning,” he explained.

“When they have those economies of scale where they’re able to compete effectively, they’re able to get good financing, which enables them to lower their rentals or be able to offer a better to their tenants.”

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