Ian Anderson, Head of Listed Property and Portfolio Manager at Merchant West Investments, as well as compiler of the SA REIT Association’s monthly Chart Book, said the South African Real Estate Investment Trust (SA REIT) sector is poised to see positive distributable income growth for the first time in three years.
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However, Anderson says, interest rates are unlikely to fall as swiftly or as significantly as previously anticipated, while the signing of the Expropriation Bill into law by President Cyril Ramaphosa has added uncertainty for some investors.
“The threat of additional loadshedding in February 2025 is also likely to dampen investor sentiment and, in this environment, SA REITs may struggle to build on the strong performance seen last year in the near term,” said Anderson.
Challenges for REITs
Anderson said SA REITs began 2025 on the backfoot, following US President Donald Trump’s threat to raise tariffs on countries such as Canada, Mexico and China. As a result, global inflation is expected to remain elevated for longer, which presents challenges for REITs and other interest-rate sensitive sectors. January’s share price performance underscored investor concerns.
At their first policy meeting of the year, the US Federal Reserve opted to keep interest rates unchanged, marking the first time since July 2024 that no rate cuts were implemented. This decision contributed to higher US bond yields in January.
Meanwhile, the South African Reserve Bank’s Monetary Policy Committee did reduce interest rates by 25 basis points, although the decision wasn’t unanimous. Future rate cuts will depend on the outlook for global inflation and the scale of tariffs introduced by President Trump.
A modest 0.4% gain
Against this backdrop, South African REITs saw a 3.6% decline in January, underperforming the broader equity market, which rose 2.3%, driven by strong returns from the precious metals sector and the bond market, which posted a modest 0.4% gain due to attractive real yields in South Africa.
Anderson said it is not unusual for South African REITs to start the year with negative returns. Since 2020, they have only delivered a positive return in January once, in 2024.
This year, only three companies posted positive returns in January, with Texton Property Fund leading the pack with a 12.5% gain. Accelerate Property Fund (+2.1%) and Spear REIT (+0.9%) also saw modest price increases.
Visit https://sareit.co.za/sareit-research/ to download the SA Reit Chart Book for January 2025.
