Since long time the consolidation of SA’s property is under process due to the careless of new listings since the last three years.
The property sector has been passing from bad property listing since last 18 months with remarkable low interest rates which is creating a suitable environment for new property vehicles.
But the question is that whether the sector is feasible to see further any more new listings or it will see more combinations as the newer and smaller listings seems to merge and reach the state where they can attract the institutional investors.
The ongoing corporate activity in the listed property sector is expected to continue this year with signs of number of property to lower due to the shortage of quality fixed properties available.
Pundits believe that for the next six to 18 months there will be the merging in the property sector following the poor new listings over the past three years. According to JSE there have been 17 new property listings found in that period.
In 2003 and 2004 plenty of listings were seen followed by a constrained period of merging when larger larger listed property stocks received smaller peers. Analysts says that this will repeat when the ability to raise the capital in the form of equity becomes rather easier.
Peter Clark, the investec analyst said on Wednesday that “We are expecting some combinations in the sector to happen, especially in the smaller areas where the capital is limited, and these funds will have to call upon the corporate action for the growth.”
He also said that “The cost of capital including both equity and fixed debt, has increased due to which the recovery of direct property less attractive as the direct market takes time to adjust the pricing expectations.”
Due to high bond yields the property investments are under pressure globally. As the yields of the listed property and bonds are both, income generating investment and investors allocated capital, they are highly correlated.
SA investors who had invested in the offshore property stocks were in advantage compared to those with interest in South African based stocks. Also this year the rand value had fallen highly against the value of dollar by 15%.
Warwick Lucas, the Imara SP Reid analyst said that it was quite reasonable that a consolidation period would occur.
“I believe that it is realistic. There is always a particular reason for a business to list. Participants in a sector will be willing to list if they believe their sector to be highly rated compared to others.
He further said that “ The property stocks are not much related to the interest rate cycle, it appears very absurd that interest rates will drop down for a longer period of time.”
Presently the interest rates are at their lowest levels of the last 30 years in South Africa.
Mark Kaplan, the chief operating officer of JSE-listed Arrowhead Properties said that while he believed debt funding for property acquisitions was achievable, obtaining equity funding was rather very difficult.
He said that “We could see consolidation in coming six to 18 months.”
Fresh listings of 2013 includes Attacq Limited, Delta Property Fund, GO Global Properties and Tower Property Fund.
Mr. Clark added that the platform for raising equity for smaller funds has also changed in 2013.
“It is not as easy as it was six months ago, a flow we expect to continue. As funds are in a position where they cannot increase capital and/or find attractive achievements, consolidations are likely to move further.”
At last Mr. Clark said that “Shareholders are probable to encourage this as it increases size and critical mass which drives liquidity.”
