Outlook dims for S.Africa's once-hot property funds

Wed Oct 26, 2011 9:54am GMT

By Helen Nyambura-Mwaura

JOHANNESBURG (Reuters) - A blistering surge by South Africa's listed property funds may be starting to stall, as a stagnating economy and rising vacancies bite into what was one of Johannesburg's top performing sectors last year.

The funds, some of which have become members of South Africa's Top-40 index of blue-chips, have been popular with investors looking for exposure to real estate in Africa's top economy.

But with a glut of available property and weakening economic growth outlook, the funds are starting to feel the squeeze.

To attract tenants, landlords are lowering rents or offering some rent-free months for long-term leases. And to maintain current tenants, more owners are agreeing to keep rents flat.

Investors, therefore, cannot expect the same blockbuster returns from property in the next decade, reckons Erwin Rode, CEO of property consultancy Rode & Associates.

"It is unrealistic to expect such vigorous growth in total returns over the next 10 years," he said.

"There's a general acceptance out there, realisation, that total returns will come down dramatically over the next 10 years or so."

Johannesburg's index of listed property funds jumped 19 percent last year, outpacing a near-15 percent rise in the Top-40 index.   Continued...

A man walks a house in the upmarket Diepkloof extension in Soweto, South Africa, February 19, 2006. REUTERS/Siphiwe Sibeko
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