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South African Real Estate had positive returns compared to global markets

South African investment property continued to deliver positive returns in 2023, despite many global markets experiencing negative returns for investors due to high interest rates, according to MSCI which released the latest SAPOA South Africa Property Trends Report.

 

The findings were shared by Eileen Andrew, Vice President at MSCI, during the SAPOA Research Webinar last week shows that the South African real estate market has remained resilient, with returns surpassing those in global markets, which have been more adversely affected by high interest rates and bond yield movements.

 

“South Africa seems insulated from global interest rate and bond yield movements, offering consistent returns to investors,” said Andrew.

 

Internationally, there has been a noticeable capital outflow from real estate into other assets due to decreasing valuations. Office properties in many major global cities have seen significant money outflows, while residential properties have  benefitted.

 

Infrastructure assets, such as social infrastructure, health, and education, are attracting interest due to their potential to deliver stable returns amidst economic uncertainties.

 

South Africa presents substantial opportunities for infrastructure investment, which could address the government’s struggle to deliver essential services and provide investors with the returns they seek.

 

“The scope for infrastructure investment in South Africa is vast, offering real opportunities for property owners to get involved,” added Andrew.

 

South African property funds have also invested abroad in markets such as Poland, Hungary, the Czech Republic, Portugal, and Spain, where positive returns have been observed. These markets have recently outperformed  larger, more developed markets in Europe and the US.

South African property funds fared better compared to many global markets in 2023, less affected by higher-for-longer interest rates and maintaining positive returns.

 

Retail property returns in South Africa improved in 2023 as it recorded its best total return in five years, with valuations becoming more realistic and in line with investor expectations. Trading density growth remained positive on an inflation-adjusted basis, ending March 2024 at 6.2%.

 

Office properties in South Africa exhibited a wide range of performance, with high demand in certain nodes while others struggled. Internationally, office properties in many major cities are facing challenges due to increased vacancies and muted deal volumes driven by the work-from-home trend.

 

The industrial sector continued its strong performance, driven by stable income growth and resilient asset values amid strong demand.

 

Global real estate performance and deal volumes remained under pressure due to high interest rates that have not decreased as expected. This has led to capital flowing out of real estate into equities, bonds, and other investment vehicles.

 

Despite a challenging operating environment and macroeconomic headwinds, the South African real estate market remained relatively stable. Investors are seeing reasonable returns, although capital growth has slowed. The local market’s resilience is partly due to its insulation from global interest rate fluctuations.

 

The South African Property Owners Association (SAPOA) South Africa Property Trends Report, compiled by MSCI, provides valuable insights into the current state of the real estate market, highlighting the resilience and opportunities within the domestic market. As global markets grapple with high interest rates and declining returns, South Africa continues to offer attractive investment prospects.

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