But the signs of development are misleading. Big companies, including Sasol and Discovery, have been building massive new headquarters, but they have moved out of other buildings, which may now be sitting empty or let at a discount, as oversupply continues to be a feature in the sector.
In fact, as Catalyst Fund Managers investment manager Paul Duncan puts it, the signs of development are “more musical chairs than net new demand.”
The past few years have been a daunting time for property companies, with a slowing economy, declining demand for new space and oversupply. With few exceptions, they have acted to offset lower earnings expectations by expanding offshore.
Over the past ten years, the contribution of foreign assets to South African listed property companies’ earnings has increased from almost nothing to 35%.
As recently as 2009, the international exposure of the property companies listed on the JSE was limited to the likes of what was then called 'Liberty International', since split into Capco and Intu.
With the rest focused locally, property fundamentals became challenging, says Duncan.
“It has become difficult to deliver the earnings growth investors had become used to,
so as they sought earnings growth, they have had to look at other markets.”
An increasing offshore focus is evident across most sectors, but in the case of property,
has been one of the reasons driving the JSE to consider dumping the benchmark
FTSE/JSE South African Listed Property Index to create three indices - South African
Reit, All Property and Tradable Property.
The details, at this stage, are unknown, making it difficult to predict if or how this will affect individual shares in the sector and institutional index tracking. “At this stage nobody knows,” says Duncan. “The JSE won’t want to create massive volatility, obviously there are property companies with big weightings in the existing index and it will want similar weightings,” he says, adding that the changes could create opportunities for active managers.
Anton de Goede, portfolio manager at Coronation, says some of the smaller stocks which may be included in a wider index will become more closely watched, but the changes should not materially change investment strategies. “With new index inclusions, there may be a price jump on the day or week but then things should normalise.”
What the proposed changes illustrate, though, is that there are very few South Africa-focused property companies left on the JSE.
“It has become difficult to deliver the earnings growth investors had become used to,
so as they sought earnings growth, they have had to look at other markets.”
An increasing offshore focus is evident across most sectors, but in the case of property,
has been one of the reasons driving the JSE to consider dumping the benchmark
FTSE/JSE South African Listed Property Index to create three indices - South African
Reit, All Property and Tradable Property.
The details, at this stage, are unknown, making it difficult to predict if or how this will affect individual shares in the sector and institutional index tracking. “At this stage nobody knows,” says Duncan. “The JSE won’t want to create massive volatility, obviously there are property companies with big weightings in the existing index and it will want similar weightings,” he says, adding that the changes could create opportunities for active managers.
Anton de Goede, portfolio manager at Coronation, says some of the smaller stocks which may be included in a wider index will become more closely watched, but the changes should not materially change investment strategies. “With new index inclusions, there may be a price jump on the day or week but then things should normalise.”
What the proposed changes illustrate, though, is that there are very few South Africa-focused property companies left on the JSE.
