South African listed property going from zero to hero

South Africa’s listed property sector has staged a comeback in recent years as market conditions improve, with interest rates coming down and economic activity picking up slightly. 

The sector was the best-performing index on the JSE last year, generating a 30% return that was far greater than that of the All Share Index or All Bond Index. 

This came after a prolonged period characterised by a challenging operating environment, where property companies generated meagre returns. 

Head of real estate advisory at Investec Investment and Corporate Banking Karl Priessnitz explained that multiple factors have converged to shift the dynamic and create powerful momentum. 

These tailwinds have created compelling opportunities for both local and international investors to capitalise on the market’s renewed potential, he said. 

There were some questions surrounding whether this would continue into 2025 due to uncertainty about South Africa’s economy and whether interest rates would come down further. 

While much of the attention has been on the strong performance of mining companies due to elevated commodity prices, listed property has also had a relatively strong year. 

Priessnitz said that the JSE’s All Property Index has already delivered returns of 14% year-to-date, with it being on track for an annual return of over 20%. 

This is significantly below the JSE All Share’s over 30% return for the year so far, but coupled with its strong performance last year, listed property is back on the radar for many asset managers. 

South Africa’s property sector is highly sensitive to inflation and interest rates, with lower rates typically translating into better returns due to lower debt repayments. 

As a result, the country’s low inflation rate and declining interest rates have benefited the sector immensely in 2025. 

Investec equity analyst Nazeem Samsodien said ongoing capital investment in fixed assets in South Africa could also further lower the country’s risk premium and add additional tailwinds to the economy. 

Local REITs are also benefiting from a convergence of domestic tailwinds that have helped push average organic net property income (NPI) growth to 5.1% for 2024 compared to 4% for the same period in 2023.

Samsodien said most key metrics driving organic NPI growth, such as renewals, escalations, costs, and vacancies, are improving or stable.

Strong run set to continue

The property sector’s strong run is set to continue throughout the rest of the year and potentially into 2026 as inflation continues to moderate and interest rates are expected to come down further over time. 

Investec analysts forecast a subdued Consumer Price Index inflation environment, below 4.1% in the medium term. 

Inflation for August 2025 was 2.8%, indicating a steady inflation rate compared to the previous month. 

From a currency perspective, the rand currently trades at a discount to its fair value, positioning property investors to benefit from foreign exchange tailwinds as global risk appetite improves.

With South Africa already into its rate-cutting cycle, continued disinflation and a shift to cutting cycles from more central banks around the globe have given the Reserve Bank more room to make further rate cuts. 

“Investec analysts believe the SARB may surprise positively to the upside with more rate cuts in 2026, and lower interest rates will reduce funding costs and unlock property sector cap rates,” Treasury Risk Consultant at Investec Investment and Corporate Banking Kudzai Munetsi said.

Coupled with the structural reforms underway in the energy and logistics sectors, and fiscal consolidation initiatives that are gradually improving investor confidence, Investec forecasts real GDP growth for South Africa of 1.7% year-on-year in 2026, which is above consensus.

This should benefit listed property companies, which are heavily exposed to the South African economy and highly sensitive to local economic growth. 

Landlords have also done the hard yards and invested strategically to create a more resilient sector, with significant solar installations and and water backups investments to reduce operational costs and mitigate outages to create reliability.

“Overall, the outlook for the local property sector is very positive, with distribution growth screening positive across all counters for the first time in a long time,” Priessnitz said. 

“This is being compounded by wider-than-historic average discounts to NAV, offering further protection and potentially upside to the bulls.” 

“In addition, the sector has normalised, reflecting true underlying property fundamentals filtering through to distributable income.”