It is a good thing we are born without the ability to fully recall pain — unpleasant memories, yes, but no actual sensation of past horrors.
That knowledge will give investors in the JSE property sector little comfort, having suffered a ghastly five years. They just want the present agony to be over. What are the chances?
Analysts say the only way property can recover is for landlords to hunker down in partnerships, with slimmed-down head offices that can get rid of the duds and milk the assets worth milking.
Fund managers fancy the prospects of a more streamlined property sector. Fewer, larger stocks are easier to buy and sell, and better liquidity encourages trade. Eventually, fingers crossed, the JSE property sector as a whole might be revived.
One example of why the industry desperately needs consolidation is Arrowhead Properties, which has just released the worst results in its history. Its dividend fell nearly a third in the six months to March.
Arrowhead was listed in 2011 by the late Gerald Leissner. Its merger with Gemgrow Properties is expected to be done by January 2020.
I interviewed Leissner in 2014 for Business Times, having first met him when he oversaw the vast empire of Anglo American’s property assets as CEO of Ampros in the 1990s. He was an entertaining subject, not least in how he described the dismantling of the Anglo portfolio and his subsequent assembly of sub-investment grade properties into ApexHi.
In the early 2000s, ApexHi was a rapidly growing fund that differentiated itself by paying investors higher yields for the higher risk of owning slightly grubby properties in such lovely locales as Mitchells Plain, Witbank, Nelspruit, Roodepoort and Edenvale.
In 2009, ApexHi was sold to Redefine and Leissner retired … for a short while.
As a canny veteran who saw prospects beyond the bright-lights appeal of Sandton, Hatfield, Claremont or Umhlanga, Leissner had developed a liking for B-grade property. Redefine wanted to get rid of some its subprime buildings and Leissner was happy to sweep 100 of them under the roof of his new listed entity, Arrowhead.
Leissner was 72 when we chatted. It was just five years ago, and the JSE property sector was at the peak of a run that had begun at the turn of the millennium.
Property share prices had thrashed the pants off most JSE constituents, and yields provided handsome income streams that comfortably beat cash and bonds. Yet how much of that outperformance was due to brilliant asset management rather than friendly macroeconomic factors? Not a lot, said Leissner.
“People made money in property stocks because interest rates fell to such low levels [5% in June 2012]. If you bought units when ApexHi originally listed in 2001, overdraft rates were 16% or 17%. When interest rates fall the value of property stock goes up.
“So people made money because property stocks paid consistent growing income, which obviously got the stock prices to rise, but in the main because interest rates fell dramatically.”
It was a sobering assessment in 2014, given what we know about how badly property stocks would crash in subsequent years. They are the basket case of the JSE right now, with the repo rate at 6.5%, and nobody really expects rates to drop much further.
Gill Marcus, then the Reserve Bank governor, surprised many when she lifted the repo rate 50 basis points in January 2014 to 5.5% and a further 25 basis points to 5.75% in July. She warned that the bank was losing patience with stubbornly high inflation.
Things didn’t get better from there. Today we sit in a truly moribund economic environment, and landlords cannot expect much help from lower interest rates.
At least it’s not as bad as June 1998, when the benchmark interest rate hit its record high of 24%. If we ever head back in that direction, we really would have to panic.
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