BlackRock unlikely to aggressively invest in SA’s listed property

Investment house BlackRock says it is not looking to aggressively invest in listed property in SA or any other developing countries because of weak economic growth prospects.

BlackRock is one of the largest multinational investment management corporations in the world. Its European real estate securities team has been in SA this week, seeking clients whose money it can invest in markets abroad.

European chief investment officer for the team, James Wilkinson, said on Wednesday he was placing more investment funds into developed markets this year. “The fundamentals are not especially strong in various developing markets. SA is having a difficult time at the moment. While we do hold shares in some South African Real Estate Investment Trusts (Reits) and monitor the market here, we are not aggressively buying in SA,” he said.

SA’s growth prospects for the year were weak, a matter of concern for Wilkinson.

The economy grew at 1.5% last year, its slowest pace since the 2009 recession. The World Bank has forecast economic growth to be at about 2% this year. The International Monetary Fund this week cut its forecast for the year to 2% from 2.3% in October.

Wilkinson said he had recognised that consumers were facing cost of living pressures.

On Wednesday Stanlib’s chief economist Kevin Lings said at a South African Council of Shopping Centres conference in Johannesburg that the South African consumer was struggling with rising food, petrol and electricity prices.

“Household consumption accounts for about 60% of SA’s economic output but a rising cost of living is threatening it,” he said.

This meant listed property companies which owned shopping centres would also feel strain on trading levels for the rest of the year.

Wilkinson said besides having to excel in a difficult economic environment, SA’s listed property sector still lacked liquid, sizable companies. The three largest JSE-listed Reits accounted for about 50% of the listed Reit sector: Intu Properties, which owns no assets in the country but is listed here, Growthpoint Properties and Redefine Properties.

“We believe the sector is still top heavy with a few companies being much larger and more liquid than most of the others. This leaves some more limited options for our clients who are seeking liquidity.

“The Reit status of the sector is a positive as our investors appreciate that Reits will pay regular dividends. SA’s listed property market will mature in the future,” Wilkinson said.

Most property funds have converted to Reits, using a capital structure considered to be global best practice. Reits use an ordinary share structure as opposed to a complex linked unit structure and pay out the majority of profits to shareholders.

This article was first published by BDlive.