Property investors are poised for higher dividends, with the SA Real Estate Investment Trust (Reit) Association forecasting an 8%-9% increase in returns in the coming year.
This positive outlook comes after Reits demonstrated resilience over the past few years.
With global interest rates having peaked and expectations for improved occupancy rates and rental growth, dividends are projected to rise in 2025, paving the way for a positive re-rating of the sector.
Merchant West Investments head of listed property and portfolio manager Ian Anderson said: “With limited company-specific news, investors focused on broader macroeconomic issues likely to shape 2025, including concerns over tariffs, the US Federal Reserve’s actions and escalating geopolitical risks. These factors weighed on investor sentiment, contributing to a decline in the SA equity market,” Anderson said.
The SA Reit sector bucked the global trend in December, posting a 1% increase, while the bond market continued its downward trajectory.
Over the course of 2024, SA Reits outperformed all other asset classes, delivering an impressive 35% return, far surpassing the broader equity market, which gained 13%, and the bond market, which saw a 17% return.
After facing a 2.6% decline in total returns in 2023, the Reit sector encountered significant challenges, primarily driven by rising interest rates, inflation, and broader economic pressures on the property market.
Anderson said the pace and scale of interest rate cuts will be critical for the sector in 2025, as lower rates could boost property valuations and income growth. While SA’s political advancements may improve investor sentiment, the possibility of tariffs under US President Donald Trump could drive inflation, potentially leading the Federal Reserve to delay rate cuts. Early signals from the US bond market already reflect this scenario.
“While the impact on SA Reits remains uncertain, global shifts in sentiment towards Reits could have local effects. However, SA Reits are set to deliver strong income returns of 8%-9% in 2025, providing a solid foundation — truly, a bird in the hand is worth two in the bush,” he said.
Last week, independent property analyst Keillen Ndlovu said while most Reits and property companies reported lower earnings in 2024, he was forecasting modest positive earnings growth for 2025.
Ndlovu said despite higher interest rates, balance sheets had been well-managed, with loan-to-value ratios and interest cover ratios on average remaining under control. Over the past two to three years, the sector has been reducing debt by selling assets, often at or near book value. However, a shift seen last year in the, sector indicates that it is moving from being a net seller to a net buyer of assets, particularly in the retail sector.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.