© PLSA 2011
SA listed property prices (J253 index) fell 10.5% from the first week of January 2011 to the middle of March 2011. The sector has since recovered about 9% (since mid-March). What caused the sector to fall so much in such a short space of time? Ten-year bond yields moved up sharply from 8% all the way to 8.8% i.e. capital values fell. Given that the listed property sector is highly correlated to the bond market due to its income generating ability, we saw listed property prices fall (i.e. property yields moved up) by 10.5%. Income from property companies can be predicted with reasonable certainty and this explains why property yields tend to compared/benchmarked with bond yields. What caused bond yields to move up though? The market was starting to price in higher inflation and therefore higher interest rates. However, things changed from mid-March. Foreigners realised that our (SA) bonds were looking attractive and started buying a lot of them. As a result, bond yields strengthened from 8.8% all the way down to the 8.15% levels i.e. capital values increased. The listed property sector was now looking cheaper relative to the bond market. This drove back interest into property stocks and thus the 9% rise in prices (from mid-March to mid-June). Year-to-date (31 December 2010 to 15 June 2011), the listed property sector has given a total return (income + capital) of 2.98%. This is superior to the JSE All Share Index’s negative return of 2.3% over the same period. The major risk for the listed property sector is rising bond yields. Keillen Ndlovu, Head of Property Funds, Stanlib T. +27 11 448 5118