What's behind property's recent poor performance?

Property prices dropped a massive 8.25% during the last week of May - what is the reason for this?

Property is a hybrid asset class with a high positive correlation to bonds.  This basically means that when bond yields for example rise, property yields will follow suit, although not necessarily to the same degree.  The opposite also holds true, when bonds yields drop, so do property yields.

So during the last week of May foreigners were net sellers of our bonds, to the tune of just over R6bn.  On Thursday, 30 May, foreigners sold a net R5.5bn of our bonds.  To put this into perspective, this was the biggest one day sell-off since September 2011.  This lead to significant bond market weakness and the subsequent jump in long bond yields (R186) from 7.055% to 7.57%.

Due to the high positive correlation between property and bonds, property yields followed suit and rose from 5.81% to 6.34%.  This represented a percentage point jump of 9.21.

So, due to the inverse relationship between property yields and property prices, as can be seen in the graph below, property prices plummeted. 

Property prices dropped a massive 8.25% during the last week of May.  This obviously has a knock on effect on property unit trust funds.  The worst performing property unit trust over the last week of May lost 10.88%. The best performing property fund lost 4.57% and the category average retuned -8.57%.

The SA Listed Property Index has subsequently recovered “some” of the above-mentioned losses.  The index is up 2.63% since 31 May 2013.

* This report was prepared by Melvyn Lloyd, investment analyst, Glacier by Sanlam

  Comment on this Article

  Please login to post comments

Post to my facebook wall
Characters remaining

    Latest Property News
    • 20 Apr 2018
      Whenever changes in the political ecosystem of a traditional property market create uncertainty, smart investors begin to look elsewhere for new opportunities. Property experts at IP Global have analysed the trends and crunched the numbers to find new markets to explore in Europe and the United States.
    • 20 Apr 2018
      Energy and water self-sufficiency are increasingly important factors in home buyers’ choice of property – especially in Cape Town where the extreme drought of the past few years has made municipal supply costly as well as uncertain.
    • 19 Apr 2018
      During the last decade, rampant development has progressively transformed Cape Town’s property landscape with densification being the order of the day, but there are still one or two hidden gems like Scarborough which have retained their original character, offering an inimitable lifestyle and an attractive investment opportunity.
    • 19 Apr 2018
      The rental market is a cut-throat sector of the real estate market that waits for nobody. According to Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa, first-time renters need to be fully prepared before they even start the process of looking for a place to rent in order to avoid the disappointment of losing out on their ideal property.
    • 19 Apr 2018
      Choosing to buy your first home instead of continuing to rent is a big decision that will usually take some time to put into action, but the sooner you can save up a sizeable deposit, the closer you will be to reaching your goal.
    • 18 Apr 2018
      Selling your home is no small task and as you will quickly find out, there are a lot of misconceptions about the process. Gerhard van der Linde, Seeff's MD in Pretoria East lists the top 5 misconceptions when you are selling your home.
    • 18 Apr 2018
      The Cape Town municipality is now installing water-management devices at properties that have been non-compliant with the new level 5 water restrictions and there are talks of fines between R5,000 and R10,000 for households that use too much water.
    • 17 Apr 2018
      The recent interest rate cut has stoked the coals in the first-time buyer’s market. At least for the next two months until the next interest rate announcement, homeowners are guaranteed lower monthly instalments than in the previous quarter. But, is it wise to take out a 100% bond just to enter the property market while interest rates are low?
    Subscribe to the MyProperty Newsletter

    Last Name  
    Email Address  
    Email Frequency
    Share this Page

    For Sale Property
    Rental Property
    More Options
    Connect with us