Listed property unlikely to be affected by repo rate

A 25 basis point increase in the repo rate today, is unlikely to have any effect on South Africa's listed property sector.

The little interest rate hike will not impact longer-term funding rates as well as not ad to a slowdown in economic activity.

The Monetary Policy Committee’s (MPC) decision has allowed a breather ahead of the next meeting, where interest rates are likely to remain on hold if there are no major external shocks and if inflation expectations continue to be anchored, albeit at levels within the upper end of the SARB's targeted range.

The MPC does not have a mandate supporting economic growth, however it acknowledges the impact that its monetary policy decisions have on the wider economy. Against a backdrop of decelerating consumption expenditure, notably in the private sector and ongoing labour unrest, South Africa’s economy is not positioned to absorb significant interest rates hikes at present.

Therefore, interest rates are assumed to stay at lower levels for longer, which should provide support to present listed property valuations and contribute to motivating distribution growth throughout 2014 and 2015.

Listed property outperforming

South Africa's listed property will remain to attract investors seeking firmer ground for trading.

Last year, equities outperformed the listed property sector as an asset class, although head of property funds, Keillen Ndlovun at Stanlib, delivered convincing reasons to include listed property in investors’ portfolios, during last month’s IPD SA conference in Sandton.

He quoted the Hebrew proverb, “He is not a full man who does not own a piece of land.”

Listed property of South Africa delivered total returns of 8.4% last year, overtaking cash and bonds. Bonds returned 0.6% as cash returned 5.2%. Last year however, since 2009, equities overtook listed property for the first time, with a 21.4% total return, over double the sector’s 8.4%. Over the previous 15 years, listed property has overtaken bonds by 13.3% each year, a direct consequence of the asset class’s ability to produce inflation-beating income growth.