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Johannesburg - Listed property looks like an attractive investment in 2009, although an uptick in vacancies could hurt income growth, say analysts.
Over 2008, the listed property sector shed 4.47% compared with a 23.23% drop in equities.
Richard Anderson, a portfolio manager specialising in listed property at Sanlam Investment Management, says he is concerned about the downturn in the economy and the impact that will have on tenants.
"We see bad debts and vacancies increasing this year, which will impact income growth. We see income growth declining slightly to levels around 8% - 9%," he says.
Catalyst Fund Managers investment manager Paul Duncan is more optimistic, saying that the valuations on listed property stocks are compelling. "Listed property stocks are not immune to market volatility and uncertainty. However, the companies have strong fundamentals and we believe that declines in the past year were linked to the general market's risk aversion," he says.
The general market expectation for distribution growth on listed property is seen at 10%.
This means that the forward yield on the sector stands at around 9.75%. On this basis, listed property is attractive compared to bonds. And the sector could also outshine cash, especially in the second half of the year when falling interest rates will impact yield on fixed cash deposits, currently at a rate of 10% on 12-month retail bank fixed deposit.
The market consensus is for interest rates to decline by between three and four percentage points over the next 12 months.
Anderson says listed property stacks up relatively well against equities with equities having "a hard time" with earnings. "So property stocks, which get some security from leasing contracts, do get some insulation from the earnings downturn."
Stock picks for 2009:
Fountainhead Property Trust:
Picked by both Duncan and Anderson, this broad-based property trust is favoured because of its solid fundamentals, conservative management and low gearing. Major assets include Centurion Shopping Centre (Gauteng), Westgate Shopping Centre (Gauteng) and Kenilworth Centre (Western Cape). Linked units in Fountainhead declined 15.4% in 2008.
Growthpoint Properties: Selected by David Sylvester of Investec, this is South Africa's biggest listed property company by both market capitalisation and assets. The diversified portfolio, valued at R26bn, is diversified into retail, office and industrial spaces - with good geographic spread. Growthpoint fell 4% on the JSE last year.
Emira: Another selection by Paul Duncan. This property unit trust is favoured because of its risk-diversified portfolio, more than half of which is office space. Emira lost 11.47% of its value on the Johannesburg Stock Exchange in 2008.
- Fin24.com