Property stocks stage comeback

The sector's about-turn since July 3 comes on the back of a significantly improved outlook for both inflation and interest rates, says Catalyst Fund Managers MD Andre Stadler.

That is in stark contrast to the situation only six weeks ago when investors were still bailing out of property stocks in a big way.

Catalyst figures show that by end June the listed property index was down more than 30% from its November 2007 highs. The massive slide in property share prices over the eight-month period was the largest draw down experienced by the sector in 15 years.

Stadler says the strong rebound in July underscores just how quickly market sentiment can change. "While valuations remain significantly below the previous high, listed property was up 18.19% for the month of July. Most notable was the complete lack of liquidity as investors attempted to gain exposure to the sector."

Stadler say the key lessons for investors are: a focus on short-term market fluctuations can result in inappropriate investment behaviour; attempting to time markets is risky; and time spent building an appropriate long-term investment strategy is time well spent.

Although cash remains attractive for investors with a short-term horizon, Stadler argues that listed property remains a good long-term bet on the back of healthy earnings growth prospects.

He says property companies are expected to continue to grow their distributions (income payouts) by an average 10% to 12% for the 2008 financial year.

"As a result of limited supply of commercial property space and high barriers to bringing new supply to market most property companies will continue to see upward rental growth on renewals."

In terms of the performance of individual counters, Catalyst figures show that the top five property stocks for the year to date (January to July) are Ambit with a total return of -2.96%, followed by Vukile (-7.62%), Capital (-7.97%) and ApexHi A and B (both at -9.7%). The five worst-performing stocks over the same period are Madison (-34.67%), Monyetla (-30.55%), Octodec (-24.85%), SA Corporate (-24.16%) and Premium (-22.13%). That compares to a total average return for the sector of -15.42%.

Since the beginning of August listed property prices have jumped another 7% or so, no doubt in anticipation of companies declaring favourable distribution growth during the current reporting period.

Some 60% of all funds are reporting either full year or interim results in August.

- Fin24.com