Listed property experienced a rough ride in 2018 with average share prices losing more than 25% and investors are cautioned to carefully assess the risks as the volatility is likely to continue.
The asset class delivered a negative return of 25.2% for the 12 months ending in December 2018. This affected the three-year return, with investors losing 1.1% over this period compared to gains of 11.7% for the three years to end-December 2017, says Eugene Visagie, portfolio specialist at Morningstar Investment Management.
Prior to 2018, he says, the property sector beat all other local asset classes, but the impact of stock-specific declines last year combined with a low-growth environment resulted in listed property experiencing its worst calendar year return since the inception of the South African property index (Sapi) in 1993.
Some of the company-specific issues include the Viceroy allegations about the Resilient group of companies, which prior to their collapse comprised more than 40% of the Sapi. The more recent rumours around Nepi Rockcastle (also part of the Resilient group of companies) and a potential takeover bid for Intu Properties falling through resulted in the stock losing more than 45% in November alone, according to Visagie.
Despite the negativity, the South African real estate investment trust (Reit) sector believes it will deliver double-digit returns for investors in 2019.
Anchor Stockbrokers real estate analyst Wynand Smit expects listed property to deliver a total return, made up of share price movement plus distributions, of roughly 13% to 14% over the long term, and marginally lower than this in 2019 unless SA's economic and political outlook improves substantially.
Investors know with reasonable certainty what to expect from an investment in the Reit sector in 2019 because South African Reits have relatively predictable incomes, says Andrea Taverna-Turisan, South African Reit marketing committee chair...