What you would have if you invested R1,000 in South Africa’s biggest property companies in January

Fairvest Ltd is the best-performing property stock among the listed real estate companies listed on South Africa’s Johannesburg Stock Exchange (JSE).

Between 1 January and 11 July 2024, only one of the 10 companies compared—Equites Property Fund—saw its share prices in the negative.

While the property market in South Africa has had a tough couple of years, four South African tech stocks, Fairvest, SA Corporate Real Estate, Attacq, and Vukile Property, produced double-digit price returns year-to-date (>10%).

High interest rates, fluctuating change rates and increased costs have put considerable pressure on property companies ove the last 12 months in South Africa.

In its annual results, Growthpoint Properties noted that the South African property market has encountered significant challenges.

These include low domestic growth, volatile global markets due to prolonged high interest rates, and escalating geopolitical tensions.

Laurence Rapp, CEO of Vukile Property, emphasised that the cost of capital in the country is currently the greatest obstacle for local property groups.

He mentioned that the company struggled to make viable acquisitions totalling R5 billion out of a potential R7 billion in South Africa due to the high cost of capital.

Rapp also highlighted that prior to the decrease in interest rates in South Africa and globally, it made more financial sense to invest in foreign markets.

The issue lies in the fact that although interest rates are high worldwide, they are even higher in South Africa, making local acquisitions less attractive.

Despite these challenges, some companies have remained incredibly resilient.

This includes the best performer, Fairvest, which anticipates net property income growth exceeding inflation for the full financial year thanks to the merger with Arrowhead Properties in 2022, which was followed by successfully concluded disposals exceeding R1.3 billion.

This dramatically reduced its net debt ratio and allowed the group to move towards a retail-focused fund, it said.

The group’s portfolio of 134 properties in SA—74 retail, 34 office and 26 industrial—is valued at R12 billion and has a gross lettable area (GLA) of 1.1 million square metres, about the size of 158 soccer pitches.

As a result, Fairvest’s share price has climbed over 18% YTD.

Other top performers include SA Corporate Real Estate (+17%), Attacq (+14%), and Vukile Property (+11%).

Most of the shares in the top 10 biggest listed property companies remained positive YTD, with one exception—Equites Property Fund.

Equites’ YTD share price is down over 3%. However, it is back on investor radar, as it has climbed by 4% in the last week and over 6% in the last month.

This comes after the stock slumped 55% from its R23 peak in January 2022 to a record low of R10 in mid-2023.

Equites was among the few property stocks whose share price returned to pre-Covid levels within a year after the pandemic began in March 2020.

However, the real estate investment trust (REIT) suffered a significant setback over the past two years due to investors selling off shares following a writedown of nearly R2 billion in its UK portfolio.

Additionally, the implementation of cross-currency interest rate swaps, along with aggressive interest rate increases, has led to higher loan-to-value ratios and a significant decrease in earnings.

The recent minor market upturn can be linked to Equites disclosing its annual results up to the end of February.

Despite an expected 23% year-on-year decrease in dividends, the Reit showcased strong operational performance in both its UK and South African portfolios.

The table below compares the performance of the shares of South Africa’s Tech stocks and what the value of a R1,000 investment in each company at the start of the year would be today (as of 11 July 2024).

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