CAPE TOWN – The South African Property Index has surged 11.72 percent in the past five days on good news such as developments on a new Covid-19 vaccine, but analysts caution the index remains well down in the year to date, and local real estate investment trusts face a tough year ahead.
In the year to date, the index was down 47.1 percent by Tuesday morning, and over 12 months, the decline remained at 48.6 percent.
Reitway Global chief investment officer Garreth Elston cautioned against reading too much in what might be “irrational exuberance” in global markets over the past few days, after sentiment was boosted by developments relating to a vaccine, and by the US presidential election success of Joe Biden, which had driven the appetite for investors to take on more riskier assets, which, in turn, had propelled global listed property prices upward.
On Monday, US drug-maker Pfizer said its experimental Covid-19 vaccine was more than 90 percent ready.
“We have seen these rallies on vaccine news before. A vaccine will only likely be available next year,” said Elston. “In South Africa, property groups also face dealing with the economic damage of the virus, while UK and the US economies could still benefit from financial stimulus measures, an option that is no longer available to South Africa.”
Elston said the rise in share prices took some of the pressure off local property groups.
He said that, in addition, the onset of summer and likelihood of a vaccine being available next year might mean only a muted second wave of Covid-19 infections in South Africa, compared with, for example, European countries.
Anchor Capital’s head of research and property, Craig Smith, said the US election and development of the Covid-19 vaccine were driving sentiment and investment into emerging markets, which had also been reflected in a stronger rand against the dollar and narrower long bond yields.
Smith said most of the positive sentiment driving up property sector prices over the past few days was news driven, which made the price recovery “fragile”.
However, there was no reason the recovery should not continue in the event of further announcements that could provide further certainty about factors such as the potential distribution and take-up of the vaccine.
“We are reaching a point where investors are seeing the bottom of the cycle,” he said. Some global property sectors, such as logistics, had benefited from the crisis, he added.
In South Africa, prospects of a recovery in property would continue to be a function of action by the government to address corruption and progress on implementing structural economic reforms.
Smith said, however, he had seen a small, but noticeable positive shift in sentiment about “SA Inc” among asset managers.
UK shopping centre group Hammerson’s share price gained 7.2 percent by midday yesterday to R4.76 on the JSE. UK property investment and development group Capital & Counties’ share price was up 6.5 percent to R26.54, bringing to 22.2 percent the rise in its share price since October 30.
The share price of Central and Eastern European retail property group Nepi Rockcastle increased 4.3 percent to R72.08, after rising 25 percent from R57.57 on October 30.
Local property group Growthpoint Properties was up 2.3 percent to R12.80, up 20.7 percent from R10.61 on October 30.