As the new year is started so, many sectors may undergo many changes, one of which includes the strengthening process of the South African listed property sector.
If we look in the previous year, it was seen that many of the big listed funds were buying the smaller listed funds. Some of this includes Arrowhead which acquired 31% of the Vividend income Fund for R430m in December. While the Vukile Property Fund signed an agreement with the Synergy Income Fund at R338m and acquired 34% part of the fund.
Upon this Ian Anderson, the chief officer at Grindrod Asset Management said that “We will see lots of such acquisition activities this year also. We are having many of the bigger companies which are trading at lower returns are acquiring the smaller companies in the form of shares and no need to pay any kind of debt, so in short the transactions are profitable and will provide the earnings.”
This year two biggest merger are expected - first between the Octodec Investments and the Premium Properties while second that of Acucap Properties and Sycom Property Fund (assets are managed by Acucap itself). If these mergers will take place, than according to the analysts it will truly make commercial benefits. These merged groups will have a market capitalisation of R16.5bn. No doubt these combinations are far behind than the Growthpoint and Redefine Properties but bigger than the local listed property funds.
It is also expected that the new REIT structure will also help in this consolidation process. The REIT structure is a part of most of the property markets on the international levels, but the for the SA property sector it became available earlier this year. With its inclusion it brought many tax and regulatory changes among the listed property groups, increased the foreign opportunities for the SA property sector. However this structure can also be expected to unlisted groups in 2014.
This reconstruction process was mainly followed so that the existing local structures, property loans stocks and property unit trusts were not properly managed and controlled and the tax regulations were also irregular. These all required a proper management along with proper set of instructions - the head of tax at Grant Thornton Johannesburg, AJ Jansen van Nieuwenhuizen once wrote in a newspaper earlier this year.
Estienne de Klerk, the executive director at the Growthpoint Properties said that the listed property is growing on even though it is not contributing much in the SA stock market while the JSE as a listed property group contributes to other developed stock markets. As we know Growthpoint is one of the biggest property group which is listed on top 40 JSE index companies. It has increased its capitalisation from R30m to a big amount of R50bn now.
Due to its rapid growth, the number of foreign investors have also increased from 3% in 2009 to 20% now. But still JSE is much behind the other already developed markets - said Mr. de Klerk.
Paul Duncan, the investment manager at the Catalyst Fund Managers said that in this situation it is bit difficult for the listed property to grow at a satisfactory level on the JSE. However we can expect the unlisted funds to be listed in near future.
