The property sector rose 12.2% from last year to the end of this July, doubling the performance of equities which stand at 6% growth on the JSE.
This came as a surprise as the expectation was that equities would be leading the boards, says Kundayi Munzara, director and fund manager at Sesfikile Capital, who described the property sector as “steamy” at the moment.
Although fairing quite well, the property sector has not had a landslide of good times, Redefine Properties decided to narrow its focus to prime metropolitan areas such as Sandton, Pretoria and Cape Town.
“Because operating out in the rural areas is extremely difficult, and the municipalities are impossible to work with," said Byron Lotter, portfolio manager from Vestact.
Munzara said Sesfikile Capital has consistently been favouring the retail sector over the last couple of years. “We thought it was much more defensive and the consumer was doing well, but we are starting to get a situation where we might have an oversupply of shopping centres and we think that turnovers will start to be lower.”
With prime property going up in Sandton where one big tenant moves out and their current space is left vacant, Munzara calls this process “musical chairs”.
“There are certain fringe locations where it will be winners and losers. We think areas like Woodmead and Rivonia will be the worst affected,” said Munzara.
South Africa’s interest rate hiking cycle is bound to affect the property sector in two ways, according to Munzara. Firstly, in the short term the listed property prices.
“The current bond yields broadly at about 8% and the listed property sector gives you 6.6% as a yield. The interest rate hiking cycle will expect the bond yields to start rising. The immediate impact is that we will have a correction, on our side we are expecting 7 to 12% correction.”