Buying opportunity for listed property investors

South Africa’s listed property market declined by 1.5% last week, despite a strong finish on Friday, 12 October 2012.

There was little sector-specific news with investors focusing on the Rand, which started the week on the back foot, and the bond market for direction. The Rand came close to touching R9/US$ on 8 October, before strengthening to R8.66/US$ three days later. As a result, both the bond and listed property markets came under pressure at the start of the week before strengthening on Thursday and Friday.

After the markets closed on Friday, Standard & Poor’s downgraded South Africa’s sovereign credit rating to BBB from BBB+ and kept its negative outlook in place. This downgrade is more significant than the Moody’s downgrade as it moved the country’s lowest credit rating one notch lower.

The Rand weakened substantially after the announcement on Friday and the bond and listed property markets are likely to come under pressure.

With interest rates expected to remain at historically low levels for longer, South African bond yields looking attractive relative to yields on offer in developed markets and distribution growth from the listed property sector expected to accelerate towards 8% in 2014, any substantial pullback in the listed property market should be viewed as a buying opportunity by those investors currently underweight the asset class.

* This report was prepared by Ian Anderson, chief investment officer at Grindrod Asset Management

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