South African property stocks staged a dramatic recovery over the past 20 years to become one of the biggest winning investments in the country.
According to the latest Long-term Perspectives report from Old Mutual, investments in listed property groups have delivered a nominal return of 14% since 1980 – with 15.1% annual returns since 2002.
This followed a more negative period between 1983 and 1998, where there was a -7.8% return on stocks, ahead of the massive recovery.
Old Mutual noted that property stocks were once considered a tiny sector of the market, but has now grown into an incredibly important asset class.
“Listed property is like a hybrid of equities and bonds, offering both capital growth and a stable and growing rental income component,” the group said.
“Since 2002, dividends and reinvested dividends have accounted for 67% of the total return. The remaining 33% was capital return, driven by earnings growth, declining bond yields and improved ratings.”
Explaining the trend since 1980, Old Mutual said that property fundamentals had to recover from difficult conditions – office vacancies, for instance, peaked at 24% in 2002 causing distress at the time.
But this led to great benefit later as the voids were filled when a buoyant SA consumer boosted shopping centres.
“This combination allowed for a growth in dividends, which have more than doubled since 2002.”
The group’s data showed that since 1980, property stocks delivered nominal returns of 14% a year – with the highest annual return recorded at 53%, and the lowest at -26%.
R100 invested in listed property would have grown to R2,955 in the past 20 years- and every R1 in 1980, is has grown close to R5 in real terms.
Looking at the market over the next five years, Old Mutual remains optimistic, expecting property to deliver a solid 5.5% real return.
“This is based on the current forward yield of the sector (which is above inflation), dividend growth broadly in line with inflation, and the possibility of derating (as the pace of distribution growth declines from historical high levels and property portfolios age),” the group said.
“This expectation does not incorporate the positive or negative capital impact of movements in bond yields or distribution growth continuing to surprise positively.”