These property investments are looking good in South Africa

South Africa’s listed property sector could soon see a positive swing following a tough couple of years.

According to Naviga Solutions and Efficient Wealth, the property sector swung into a 3-year decline in 2017 following close to a decade-long boom.

“Underperformance, due to a 20% appreciation in the Rand (on an index generating almost 40% of its income abroad), was followed by reports of share manipulation and misleading statements by the Resilient stable, which comprised nearly 40% of the index, resulting in share prices falling up to 65%,” said the financial service providers.

“Shortly thereafter, we experienced the COVID pandemic. The index fell 55% amid lockdowns, work-from-home policies, and low levels of landlord pricing power.”

“While the index staged a reasonable recovery after restrictions were lifted in 2021, the sector underwent a significant restructuring.”

Moreover, as property is a debt-heavy asset, investors remained cautious amid rising interest rates in 2022 and 2023, with the repo rate hitting a 15-year high of 8.25% in 2024.

Property is also a debt-heavy asset, meaning that sentiment remained relatively cautious following rising interest rates in 2022 and 2023.

That said, over the last year, listed property has returned over 50%, leaving investors questioning their exposure or lack thereof.

“While recent performance has been driven primarily by a very low base, better sentiment amid political reforms and better growth prospects and, of course, the anticipated start of the rate-cutting cycle, the sector is also showing favourable valuations and improving fundamentals.”

The South African Reserve Bank (SARB) cut interest rates by a cumulative 50 basis points in 2024, with another 50 to 75 basis points worth of cuts predicted by economists.

The sector is also trading at a discount of between 20% and 30% to net asset value, which is well below long-term averages.

“We have also seen an improvement in rental reversions, especially in retail, and vacancy levels – including office space.”

“Furthermore, company loan-to-value ratios have fallen from peak levels and will benefit from lower cost of borrowing as rates decline.”

“While some caution remains on the durability of the recovery, the property sector seems to
be working through its challenges. Improving fundamentals and attractive valuations combined with diversification benefits and characteristics of both income and growth make listed property worthy of consideration.”

Read: Things are looking up for South Africa’s property market