Listed property sector 'could double in size'

The listed property sector could double in size over the next five to ten years, should it follow in the footsteps of its Australian counterpart.

Market commentators believe the introduction of the South African Real Estate Investment Trust (REIT) earlier this month could act as a catalyst for further listings. Rumours suggest that between ten and 22 property companies are waiting in the listing line, although experts note that companies could have difficulty in obtaining quality assets. The Atterbury Property Fund has recently indicated that it plans to list in the latter part of this year.

The SA REIT is in line with international best practice, offers tax benefits and could potentially lure offshore investors. Vukile has just become the first property loan stock (PLS) to covert to REIT.

Speaking at the launch of the SA REIT Association, Andrew Brooking of Java Capital, confirmed that the company has projects underway that would add about R20bn to the market cap of the sector in the short term.

The listed property sector currently has a market capitalisation of around R250bn. This is loosely comparable with the market cap of Sasol, which is around R270bn, according to Moneyweb data. The sector has grown significantly since 2000, when its market cap was a mere R5bn.

Estienne de Klerk, head of the REIT Committee, says an analysis of the Australian listed property sector has indicated that its market cap has been as high as 10% of the total market cap of the Australian Securities Exchange (ASX). The percentage has come down to around 6.8% since the global financial crisis.

Assuming South Africa follows the same trend and reaches 6% or 7% of the JSE’s market cap in the next five to ten years, the listed property sector could more than double in size, says De Klerk.

“We are currently roughly about 3.5% of the total JSE’s market capitalisation,” he says.

However, one has to keep in mind that the Australian commercial property market is one of the most developed in the world and it is therefore very difficult to make a local growth estimate, since it will to a large extent depend on how many companies want to list, he says.

Norbert Sasse, chairman of the SA REIT Association, says the introduction of REIT could encourage a number of companies that might have been quite happy to remain private companies, to convert to REIT and come to market.

The REIT regime is very flexible – the tax dispensation does not prescribe whether the entity has to be internally or externally managed and it does not advocate as to the kind of property assets that these entities have to own, adds De Klerk.

“So that leaves the door wide open for residential listings, for listings potentially in healthcare, for listings… even in hospitality potentially, although that comes with certain complications.”

Adds Sasse: “I think the key there is the definition of rental – to be a REIT 75% of your income needs to be rental as defined and I think that is where the hospitality one has got its challenges.”

De Klerk says it is their understanding that all 20 property loan stock companies (PLS) as well as the six property unit trusts (PUT) that are members of the SA REIT Association will be moving to the REIT board in due course. This could see the local listed property sector becoming the eighth largest REIT market globally by next year (there are around 25 REIT markets). 


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