“There have been a lot of listings since October 2010. Even in the last year to date we’ve seen a number of listings as well, which has caught most market analysts by surprise, given what’s happening at the macroeconomic level,” Craig Smith, property analyst at Stanlib, told CNBC Africa.
“I think what’s important to note is investors are becoming more discerning, and it’s important to have products that are differentiated. That still gets investors excited.”
There have been 21 property listings on the JSE since October 2010, and Smith added that the year to date in particular has shown a number of interesting listings.
Some property firms in industries such as logistics warehousing or within the industrials sector are particularly attractive to investors because of their niche market appeal.
“We’re finding that to support new listings, [property firms] really have to be differentiated and products that have good long terms prospects,” Smith added.
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While differentiation provides more variety, consolidation is equally on the rise in South Africa’s property market. Consolidation, according to Smith, can be an effective means of reducing one’s cost of capital, as the larger funds are usually able to raise equity and debt at cheaper levels.
“You’re also finding that opportunities in the physical property space also starting to become fewer. You’re finding that the likes of Growthpoint and Redefine having to turn to other listed counters to actually get quality exposure,” said Smith.
South Africa’s financial indicators however show an economy under severe strain, particularly within its manufacturing and platinum mining sectors. Business confidence has also dipped following domestic instability and uncertainty of recovery.
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“Our outlook is obviously not very bullish on the listed property space. I think there are macroeconomic headwinds. Last week you had Standard and Poor’s downgrading South Africa’s credit rating to just one level above investment grade, you had Fitch as well putting us on a negative outlook,” Smith explained.
“Given property’s linkage to the bond market and specifically the long end of the curve, it obviously isn’t great for property from that point of view in the short term. Property does rely on what happens in the capital markets, but having said that, we still are finding that the physical property fundamentals aren’t terrible, they’re still holding up.”