SA’s listed real estate sector had its worst day in history on Wednesday as it plunged amid concerns that managing the Covid-19 pandemic would result in a surge in mall owners’ operating costs.
The property index fell just under 17%. The JSE fell to its weakest level since the middle of 2013 on Wednesday, with the all share index dropping 7.15%.
Keillen Ndlovu, the head of listed property funds at Stanlib, said 2020 so far had been the “toughest period for SA listed property in history”.
“We’ve never seen something like this, or even close to this, in the history of the SA listed property sector,” he said. “It will be a stretch to achieve zero percent average distribution growth over the next 12 months with added risk from the coronavirus/Covid-19,” he said.
Ndlovu said the market was concerned there was risk that listed property companies may not be able to meet their distribution growth targets.
The initial losses of around 8% were driven by a weak SA consumer, a slowing economy and Eskom power cuts, according to Ndlovu. But suddenly the rest of the losses were being driven by global market volatility, almost entirely because of coronavirus concerns, he said.
“Though listed property has seen more losses, it’s not alone as we have also seen equities suffer and local bonds weaken,” he said.
The coronavirus has created concerns around trading restrictions or partial trading in malls in Europe, where the SA listed property sector has over 30% exposure. This created further volatility.
“In SA, the market is concerned about operating costs going up in the short term because of additional cleaning, the need for hand sanitisers and so on, sales falling as fewer people visit malls, and the risk of rent reductions or concessions because of lower sales,” Ndlovu said.
He said the SA property index (Sapy) has lost more than 50% in the year to date and is trading at levels much lower than during the sub-prime crisis.
While property stocks now appear to be at attractive valuations, a heavy degree of worldwide uncertainty means a sustained recovery in their prices is way off.
This means the discounts to net asset value of SA property stocks now exceed 60%. Yields are now in excess of 19%.
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