Globally and in SA, investing in property funds has become very competitive. Considered to be an alternative to fixed-income investments, last year there were 24 listings on the JSE, eight of them real estate listings – and there have been three other exciting announcements already this year.

With low primary interest rates, returns on real estate investment trusts (REITs) are often superior to that of fixed-income investments.

The other reason property funds are attractive stems from the regulatory changes that are supportive of development in the real estate sector. In October 2012, Treasury announced REIT tax legislation for SA. We followed up on this at the JSE in April 2013 when we introduced listing requirements for the real estate investment sector.

We’ve seen great uptake at the JSE. Property loan stock companies and property unit trusts listed on the JSE have been converted to the REIT structure. They’ve worked well for investors who want exposure to the property market without a large capital outlay. REITs earn their income from commercial properties with long-lease potential, and so they offer a better chance of having a stable income stream.

The JSE prompted another boost to the sector by introducing its fast-track listing process at the end of September last year. If a company has been listed for at least 18 months on the London, New York, Toronto or Australian stock exchanges, it is able to place a secondary listing on the JSE’s AltX or Main Board. The process is swift and significantly cuts the time it takes to get a secondary listing on the JSE.

Tax changes, coupled with our listing changes, have put us in a very good competitive position, both in terms of issuing and raising capital for listed real estate and also for investors to be able to invest. International investors also show a lot of confidence in trading and settlement here.

After we passed the listing requirements and converted property funds to the REIT structure, SA became the eighth largest market for REITs in the world. This is very impressive.

While optimistic about the sector, we are watching the global economy carefully. We could see interest rates increase this year. Investors are clearly starting to consider what strategies to pursue. SA has fared relatively well compared to other emerging markets. Some 30% to 40% of trade in SA is conducted by international investors. Where we see tremendous potential is in other parts of the continent. Firms can use a listing on the JSE as a springboard into other African countries.

To a great extent, many REITs are looking at raising capital in SA and investing it in other parts of Africa. There are various subsectors that could see growth. An example of which is the healthcare industry. Medical office blocks and facilities are an opportunity, and some trusts are focusing specifically on this sector. There’s also some growth in commercial properties for office buildings and we listed our first residential REIT this year.

On the residential side, there’s room for expansion, particularly in affordable housing and rentals, where there’s still a shortage of supply. After a record year in 2014, I’m still upbeat about the future of real estate listings. Investors have a range of property stocks to choose from and there’s much potential in the market. We anticipate steady growth in this pivotal sector for the JSE in the year ahead.

Donna Oosthuyse
Director: Capital Markets, JSE

July 2015
Image: Hanlie Huisamen