Over the last two years, we have all been waiting with bated breath for 2010. It has been promoted as the year 3 billion people around the globe watch the FIFA World Cup here and hopefully 500,000 of them come out to see the spectacle. The huge infrastructure spend on our new stadia, transport network and the Gautrain are amazingly on track; 2 million world cup tickets have been sold; and to quote Investec’s economist: “we’re on the road to growth again.”
What does this mean for investors?
Interest rates are at record low levels which means that we are getting a measly 5% interest after tax on deposits, and the JSE seems to have resumed its nose dive after doing well for us in 2009. We are told that ‘equities are now too expensive’ by leading investment house, Sanlam Investment Management, and ‘slower earnings growth will result in lower equity returns for investors over the next 10 years’ by Old Mutual. The JSE PE ratio re-rated by 82% last year, which certainly supports the view that the easy money in equities has been made.
What options does this leave the SA investor with?
Two recently published surveys, by Deutsche Bank in SA and ACSIS, have confirmed that listed commercial property has outperformed listed equities over the last 3, 5 and 10 year periods with the survey by ACSIS showing 10 year average property returns at 23.9%, followed by equities at 20.85% and bonds at 15.4%.Clearly, timing is important in these returns. Equities, which is a lead indicator, has had its run. Property,which lags the economic cycle by around 9 months (the cycle recommenced growth in the 3rd quarter last year) is now about to take off. All the indicators are there: low real interest rates, great opportunities caused by the downturn and a banking sector keen to start lending again where low risk deals are starting to appear.Waiting in the wings is an industry of professional property people who have been biding their time for this exact moment. Net yields averaged 9% last year, per Auction Alliance’s survey, and deals are still being done at the 10% level. Encouragingly, vacant space is being re-absorbed into the market. As we move into 2010 with a growing sense of optimism, the unique opportunity to enter into the best deals we are likely to see in the next decade presents itself.
How do we take advantage of these opportunities?
Listed property has already had its run. The high net worth investor can get into commercial property through Horizon Capital, a boutique commercial property house based in Cape Town, which offers the facility to build directly owned, diversified portfolios for HNWI’s, taking advantage of fixed rate gearing to magnify returns.
Horizon Capital receives details of commercial property for sale from its 135 brokers on a daily basis, selecting the best properties for further review, yield analysis and due diligence. Once 10 year cash flow forecasts are completed, it presents these properties to its clients for purchase. It then arranges the funding from the top private banks and manages the properties for these clients, handling everything down to producing bi-monthly management accounts, VAT returns and annual audit packs for the independent auditors.
For further information, contact John Witter on 021 425 8586.
