Listed property boom in South Africa – with a catch

South Africa’s listed property sector is recovering, with a significant boom expected in 2025, but some caution is still rife about the durability of the sector’s recovery.

This is according to Efficient Wealth, which outlined the performance of listed property in South Africa over the past few years.

In 2017, after an almost decade-long boom, the local listed property sector abruptly swung into a 3-year decline.

Efficient Wealth explained that the underperformance started due to a 20% appreciation in the rand on an index generating almost 40% of its income abroad.

This was followed by reports of share manipulation and misleading statements by the Resilient stable, which comprised nearly 40% of the index, resulting in share prices falling by 65%. 

Shortly thereafter, the Covid-19 pandemic hit, which significantly affected the property sector. 

The index fell 55% amid lockdowns, work-from-home policies, and low levels of landlord pricing power. 

“While the index staged a reasonable recovery after restrictions were lifted in 2021, the sector underwent a significant restructuring,” Efficient Wealth said.

“Furthermore, with property being a debt-heavy asset, sentiment remained relatively cautious amid the rising interest rates environment of 2022 and 2023.” 

The South African Reserve Bank entered a hiking cycle in November 2021, which saw the bank raise interest rates by a cumulative 475 basis points.

However, over the last year, listed property has delivered a return of more than 50%, leaving investors questioning their exposure or lack thereof.

“While recent performance has been driven primarily by a very low base, better sentiment amid political reforms and better growth prospects and, of course, the anticipated start of the rate-cutting cycle, the sector is also showing favourable valuations and improving fundamentals.”

From a valuation perspective, Efficient Wealth said the sector is still trading at a discount of between 20% and 30% to net asset value, well below long-term averages. 

“We have also seen an improvement in rental reversions, especially in retail, and vacancy levels – including office space.”

“Furthermore, company loan-to-value ratios have fallen from peak levels and will benefit from lower cost of borrowing as rates decline.”

“While some caution remains on the durability of the recovery, the property sector seems to be working through its challenges.”

Efficient Wealth said improving fundamentals and attractive valuations combined with diversification benefits and characteristics of both income and growth make listed property worthy of consideration.

A buyer’s market

Seeff Property Group chairman Samuel Seeff said that it is a great time for South Africans to buy property with the interest rate down by 50 basis points and the economy set for improvement in the new year.

He said the property market outlook for 2025 is positive, and an anticipation of more interest rate cuts in the early part of the year adds to this optimism. 

“The industry expects sales volumes to pick up and prices to start rising,” he said.

“We have now had two years of flat trading and rising stock levels in many inland areas, especially those outside of the Western Cape.” 

“These areas sit with fairly high stock levels and have experienced low to no price growth over the last few years.”

He said prices in many instances are similar to what they were two years ago, which means buyers can potentially get a good deal in the market. 

In addition, the lower interest rate has made home loans more affordable and property more attainable, making it a good time to buy.

“Buyers who wait until further interest rate cuts may risk having to buy at higher prices as Seeff expects the property market to rerate in 2025, which could see house prices rise faster,” he said. 

“Ultimately, the precursor to doing well in property is to buy low. Nobody rings a bell and announces that the market is now favourable, but we now have a rare opportunity to be able to call the market and spot a good time to buy.”

“We can now see that the market has bottomed out and is set to take the next upswing. Current market conditions enable buyers to purchase property at a low value given the flat price growth, especially in the inland areas, but also the Eastern Cape and parts of KZN.”

Seeff said property is a long-term investment and an excellent wealth creator. 

The ability to buy at the bottom of the property cycle means you start on a good footing and can potentially benefit from long-term financial gains once the market recovers and property values rise again.