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South Africa’s Commercial Properties Have The Best Returns On Investment

South Africa’s Commercial Properties Have The Best Returns On Investment

Total returns on South African retail, office and industrial buildings reached a six-year high of 15.3 percent in 2013, making South Africa the most lucrative commercial property investment destination out of 16 countries worldwide that have released results so far, according to a report in BusinessDayLive.

These findings are based on research by U.K.-based Investment Property Databank (IPD). The company tracks income and capital growth performance (in local currency) of directly held commercial property in 32 countries around the world.

The IPD annual property index measured 60 percent of professionally managed investment property in South Africa totaling $20 billion.

The U.S. was the second-best performing real estate market reported so far for 2013.

The other 14 countries that have reported results all had less than 8-percent returns, BusinessDayLive reports. So far, the Netherlands was the worst-performing commercial property market globally in 2013, with a return of 0.5 percent.

Analysts credit the asset management skills of local property owners for South Africa’s commercial property sector emerging from the global economic downturn in better shape than many others, BusinessDayLive reports.

Continuing stock market volatility has increased demand for South African commercial
property as an asset class, particularly among income-chasing investors, according to the report.

IPD figures showed that South African commercial property offered an income return of 8.2 percent in 2013, compared with less than 6 percent in most of the reporting countries it tracks.

Given South Africa’s poor employment growth and lackluster consumer spending, its 15.3 percent return is particularly impressive, said Stan Garrun, head of IPD South Africa. Landlords “actively sweating their assets” buoyed the local property sector, providing investors with consistently robust and diversified returns, he said.

Property funds aggressively bulking up their portfolios in a historically low
interest-rate environment supported returns, Garrun told BusinessDayLive. “The low cost of capital encouraged investment trading activity, which has supported property values.”

Light manufacturing and low-grade industrial property were the best
moneymakers for local investors in 2013, with a 20.9-percent return. Large malls exceeding 100,000-square-meters, delivered 19.4 returns.

In contrast, inner-city offices offered up 12.7-percent returns.

While South Africa’s listed real estate market delivered a more muted performance than directly held commercial property — thanks to weaker bond yields last year — the Johannesburg Stock Exchange’s property index still saw returns of 8.39 percent (in rand) in 2013. This was ahead of investment bank UBS’s global real estate investors index of 1.77 percent (in dollars).

There’s no guarantee that 2014 will yield the same results.

The prices of local property stocks have come under increased pressure lately, with the index recording a negative return of -2.81 percent for January and February.

That lags behind the 6.99-percent dollar return the UBS global real estate investors index delivered, according to BusinessDayLive.