Johannesburg - Investors have been piling back into property stocks in a big way, chasing the JSE's real estate index up around 30% over the past two months.
That's according to Cape-based Catalyst Fund Managers' latest monthly overview of listed property, which shows the sector continued its rebound in August.
The recovery is on the back of strengthening capital markets and a robust earnings performance for the June reporting period.
Catalyst Fund Managers MD, Andre Stadler, says property companies continue to report favourably on trading environments, despite the negative macro-economic environment.
Results reported from the sector in August reflect an average increase in income payouts, or distributions, of 12.4%.
About 60% of the sector by market capitalisation has published interim or full-year results over the past four weeks.
The recent rally in property share prices follows an eight-month listed property slump - the longest and strongest downturn experienced by the sector in 15 years.
The listed property index dropped about a third between November 7 2007 and July 3 2008, wiping out about R40bn of the sector's market value.
Although the index has regained a large chunk of these losses since July 3, it is still below its November peak.
Stadler says the eight-month downturn was mainly due a weaker economic environment, both on a global and local level, which eroded investor confidence. "At a local level, the major issues were the uncertain political outlook, deteriorating inflation and interest rate expectations, electricity supply constraints and declining real gross domestic product growth."
Rate cuts to the rescue
But it appears that the local investment outlook has improved, said Stadler.
The market is now pricing in the probability that rates will be cut by 50 basis points in six months' time, and possibly by a further 50 to 100 basis points six to 12 months after that.
Despite share prices already rebounding strongly over the past two months, Stadler is still betting on listed property as a good buy for income-chasing investors.
Catalyst figures show that the sector offers an average rolling yield of 8.68%, with a number of funds still trading at about 10%.
There is also the prospect of income payouts growing in excess of inflation, underpinned by rental contracts that are set to escalate annually at inflationary-type levels, he says.
That's the main advantage that property has over other income investments such as cash and bonds, says Stadler. "Income streams on property grow whereas income on cash and bonds do not."
Still bad news this year
Looking at the sector's performance for the year-to-date, returns are still in negative territory, with total returns down -8,95% from January to August 2008.
Niche hotel player Hospitality Property Fund (A-units) is the only counter among the sector?s 22 that has managed to deliver a positive growth performance for the year-to-date, with total returns of 1.7%.
Other stocks that count among the top five are Ambit Properties (-0.18%), ApexHi C (-1.5%), Hospitality B (-2.96%) and Capital Property (-3.21%).
At the bottom of the performance pile for the year-to-date are Madison Property Fund Managers with total negative returns of -30.85%, followed by SA Corporate Real Estate Fund (-30.46%), Monyetla Property Fund (-24.28%) and Premium Properties (-18.96%).