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Experts predict a tough 2017 for SA's property sector

Experts are predicting a difficult year for listed property. Many forecasters have said that the sector won't get near double digit total returns this year unlike many years in the past where double digit returns were commonplace. Economists are concerned that SA’s economy will barely grow this year.

The International Monetary Fund recently forecast 0.7% growth for 2017 which will make operating environments highly difficult for property developers and even owners.

Some property stock investors are choosing to rely on offshore based property stocks listed on the JSE doing well. There are also South African property companies which have exposure to offshore property, which could enjoy a good 2017.This growth has been boosted by increased offshore exposure and a weaker rand. If one stripped out the offshore exposure the income growth would slow down to 6% to 7%. Offshore earnings now make up over a third of the SA Listed Property Index. 

In terms of total returns, capital growth looks like a challenge to achieve this year given potentially higher interest rates and higher bond yields. Listed property is offering a one-year forward yield of just over 7.5%.

The South African Reserve Bank may well embark on an interest rate hiking cycle. This could lead to increasing bond yields and hence lower bond prices. Listed property tends to move closely in line with bonds as both are income generating investments.

Industrial property however, still remains underrated. Capital Property Fund bought a large chunk of it in 2015. It is now a part of Fortress Income Fund. Some new entrants to the industrial space such as Equites are also looking to develop areas such as the Western Cape.

Investors need to appreciate that listed property in SA is a long term game. While they may try to beat equities and bonds each year, it is not certain that they will do so successfully each year. This is why the investors need to invest in the listed property index for a few years at a time. 

For more information on purchasing, renting or investing in commercial and industrial property in Cape Town, please contact Robert Ryll | Cell Number: 082 374 2662 | Landline: 021 552 4100 or Email: rob@primeindustrial.co.za

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