There are certainly some shares that offer great value in the SA listed property sector, despite the underlying asset class having been affected by the negative macro-economic cycle in the SA economy in recent years, Andrea Taverna-Turisan; chair of the marketing committee of the SA REIT Association; tells Fin24.
The association represents SA's listed Real Estate Investment Trust (REIT) sector and its members comprise all 30-plus listed SA REITs with a market capitalisation of some R300bn.
"Property does afford a sustainable long-term flow of income, which should be part of a balanced portfolio," says Taverna-Turisan.
"Investors should make decisions that value quality management teams, and companies that have clear and good strategies. The long-term will always reward these companies, even though the short-term may be quite volatile."
According to property economist Erwin Rode, SA listed property is currently offering good value - backed by a very high dividend yield. This is despite negative sentiment about growth in the sector.
He too says investors would do well to take a long-term view of the sector and expect some volatility in the interim.
Rode explains that the listed property sector in SA has been outperforming the rest of the JSE for about 10 to 15 years. This trend could not last, however, because of what he calls "fundamentals".
For example, there were two forces at play at the same time, which led to the current situation. One was demand tapering off, while construction did not slow down.
"That was the situation until about a year ago and now construction is slowing down, but in the process it created vacancies that will take a long time to mop up," says Rode.
"I don't regard this as a normal business cycle slowdown. So, it is not as if we will see a spurt of growth in the SA economy soon. That is very important for investors in general to be aware of, and not just for property investors. When the economy stops growing, both industrial shares and property will stop growing."
On top of the business cycle slowdown of SA, the property cycle is very long - 15 to 20 years, Rode explains.
"We are now nearing the trough of the current cycle. We are close, but not there already, depending on what will happen to the macro-economy. This is the fundamental reason why property is doing too poorly. It had to happen. We had it too good for too long without fundamentals supporting it," he says.
"Normally I would say without hesitation that listed property in SA offers good value. The only thing making me hesitant is that no one can see in the fog of the future at the moment."
He points out that all the significant local REITs are investing overseas too, as a built-in rand hedge.
"So, the fact that prices are low now and the added advantage of many of them investing overseas - those two combined makes it a good buy at the moment probably, but I would stay with the big funds," says Rode.
What about dividend yield?
He says until about a year and a half ago, it varied. Forward yields varied from 6.5% to about 10%. Now the divergence is much greater. He thinks some of the best ones are those specialising in big distribution centres.
"I think, underlying it, is the market is saying some counters listed on the JSE have become more risky than others. The prospects are not good for some of those," Rode says.
Times are tough
Evan Robins, listed property portfolio manager at Old Mutual Investment Group, notes that the JSE's SA Listed Property Index (SAPY), a measure of the 20 most liquid REITs by market value, was the country's best performing asset class over multiple periods. It consistently outperformed inflation and delivered returns as high as 27% in 2014, 8% in 2015, 10% in 2016 and 17% in 2017.
However, 2018 saw the SAPY index fall more than 25% due to a combination of weak domestic economic growth and what Robins describes as a series of company specific issues at certain flagship REITs.
He too suggests that investors would do well to take a long-term view of the sector and expect some volatility in the interim.
"Times are tough and there might be some casualties in the sector. Avoid companies at risk. They might be the cheapest at the moment, but there must be a reason why they are cheap," suggests Robins.
He thinks some unsustainable REITs might even de-list, particularly those trading at significant discounts to net asset value.
Robins points out that one of the positive aspects of investing in listed property at the moment, in spite of the weak economic climate, is that the current low valuations are not a reflection of the quality of their underlying assets.
"There are no quick fixes for the sector, so listed property investors need to take a long-term view. Based on current metrics investors are still likely to get good yields over a longer time horizon, but there's bound to be some short-term volatility," says Robins.