Results of the latest Absa-MSCI Residential Index have revealed that the South African residential sector outperformed the 'All Property Index' by 1.2% in terms of total returns, registering a total return of 11.2% during 2018. This performance was second only to the Industrial sector which achieved 11.7%.
Amelia Dieperink, Absa Head of Affordable Housing - Commercial Property Finance, says the results indicate the residential sector can hold its own and compete for capital with the more established property sectors such as office, retail and industrial.
Out of the 20 markets producing residential results, as measured by MSCI, South Africa was third behind the Netherlands and Canada. This compared with 17.8% for the Netherlands and 11.5% for Canada. However, South Africa was ahead of Germany, which achieved a total return of 10.8%. Of all the countries assessed thus far, Italy had the lowest total return, at 2.8%.
The Absa-MSCI Residential Results are sponsored by Absa Commercial Property Finance and produced by MSCI, a leading global provider of real estate investment tools. The results are based on actual records of revenues, operating costs and annual valuations for individual properties that form part of the sample portfolio.
The All Property Index in South Africa achieved a total return of 10% in 2018, well below the long-term average total return of approximately 15%. “This demonstrates that property returns are taking strain from the weak economy over the past few years. Nonetheless, we believe that despite the general weak economy, a total return of 10% for the All Property Index and 11.2% for Residential Property represents a moderate performance given the challenging economic backdrop,” she says.
Dieperink says the portfolio of properties that were assessed to produce the latest results had a higher weighting towards affordable housing, whose income returns “were a lot more robust, reflecting a return of 8.9%, relative to only 6.5% achieved in the balance of the residential universe – the former makes up at least 84% of the portfolio.”
Another interesting development was that Cape Town and Johannesburg featured in the top 10 cities that achieved the highest total returns from all the cities within the 20 markets that produce residential results globally.
“The major metropolitan areas in South Africa are clearly more attractive, with Cape Town achieving a total return of 20.3%, whilst Johannesburg achieved 13.7%,” says Dieperink.
Other highlights of the results include:
Dieperink says Absa Commercial Property Finance is encouraged by the level of interest demonstrated by property owners who contribute data for the residential results. The Bank looks forward to these results being incorporated as part of the suite of MSCI indices in future.
“These returns clearly demonstrate that the South African Residential sector deserves its place alongside the Retail, Industrial and Office sectors. Subject to different demand and supply drivers, it will be interesting to compare the return profile over time and its ability to diversify risk return for the sector,” she says.
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