Real estate investors are no doubt disappointed by the rather muted 6.1% total return delivered by property stocks in the first half of 2025, especially given last year’s strong rally.
The JSE’s listed property index (Sapy) ended 2024 with a stellar 30% total return, way ahead of the 13% of the all share index (Alsi) and the all bond index’s 17%. It was the second year running that real estate pipped equities and bonds. But a hat-trick appears unlikely, given the comfortable lead built by general equities year to date.
The Alsi has delivered a total six-month return just shy of 17% (see graph). Bonds have also outperformed listed property in the first half of 2025, albeit by a tiny margin (6.6%).
But the Sapy’s 6.1% masks what has been a volatile six months for the sector, with wild swings in share prices. This has resulted in a significant performance gap between the JSE’s best- and worst-performing real estate stocks, figures from equity research firm Golden Section Capital show.
In fact, there is a hefty 112% between the winner, UK-based health-care real estate investment trust (Reit) Assura, with 45% year to date, and the loser, local small-cap residential developer Visual International Holdings, with a dismal -67%. Its share price collapse is linked to an 81% drop in earnings for the year to February.
The ranking for the sector’s top performers is dominated by rand hedge counters. Assura and fellow JSE-listed, UK-based Reit Primary Health Properties were buoyed by corporate action, with a potential merger between the two on the cards.
Eastern European mall owner MAS PLC has also been the subject of much-discussed takeover action. MAS’s share price was up more than 20% in June alone. Romania-based Prime Kapital and South Africa-based Hyprop Investments are both vying for control of MAS.
Other standout rand hedge performers year to date are German and UK business park owner Sirius Real Estate, London West End play Shaftesbury Capital and UK mall owner Hammerson, which have all surprised on the upside in earnings growth in recent months.
Hammerson, incidentally, alongside Nepi Rockcastle, recently announced the departure of its CEO next year. Corporate action aside, it appears the rally in offshore stocks has mostly been about playing catch-up with domestic counters, which outperformed last year.
There were two notable exceptions among the bevy of rand hedge winners: Western Cape-focused Spear Reit and retail-focused Fairvest (B shares), which both generate 100% of their earnings in South Africa.
Are offshore property stocks likely to continue outperforming their South Africa-focused counterparts? Not necessarily. Golden Section Capital MD Garreth Elston says the expected slowdown in the global economy after GDP growth downgrades by both the World Bank and the Organisation for Economic Co-operation & Development, coupled with escalating trade tension and tariff policy uncertainty from the US, creates a challenging environment for global real estate.
“The inflationary impact of tariffs complicates the interest rate outlook, with a likely slowdown in the global rate-cutting cycle. This keeps refinancing costs elevated and is particularly punishing for Reits with near-term debt maturities,” says Elston.
In contrast, South Africa-focused Reits are sitting relatively pretty amid a gloomier international outlook. Elston believes a strengthening rand and a sense of decoupling from US-led volatility are making the local property sector a more attractive destination for capital. He adds: “While global risks persist, South African Reits are well positioned to navigate uncertainty.”
Importantly, local property stocks are poised for a marked uptick in earnings — and dividends.
Naeem Tilly, portfolio manager and head of research at Sesfikile Capital, says earnings growth is expected to accelerate in 2025 after a challenging post-pandemic period, when most property stocks had to cut or suspend dividends. Several Reits reporting February and March results in recent weeks have already surprised to the upside. “Property earnings have been supported by macroeconomic tailwinds, a recovery in operating fundamentals, lower interest rates and a more sustainable earnings base,” says Tilly.
He believes the sector’s relatively high dividend yield of about 8% remains appealing for income-dependent investors, especially in a lower interest rate environment. He adds there’s also potential for share price upside, given that Reits are still trading at double-digit discounts to NAV. Tilly expects listed property to deliver total returns of about 10%-15% for 2025.
Independent property analyst Keillen Ndlovu echoes that. He says there has been a “dramatic” turnaround in earnings expectations — especially among South Africa-based property stocks. “We have seen increased confidence and upgrades in earnings outlooks from various Reits and property companies over the past year, particularly in recent months.”
He expects an average 4% increase in listed property earnings for 2025 “with potential upside surprises”. That’s a marked improvement from the average 4% drop in earnings recorded by the sector in 2024. In fact, there are now at least nine South Africa-based stocks expecting inflation-beating earnings growth for their 2025 financial year, against only three a year ago.
The 2025 earnings growth table is led by Waterfall City developer Attacq; mall owners Fairvest, Resilient Reit and Vukile Property Fund; logistics-focused Fortress Real Estate Investments and Equites Property Fund; and Stor-Age Property Reit, the JSE’s only self-storage fund (see table).
What has changed? Ndlovu says 2025 has effectively ushered in a new beginning for the property sector. “There’s no more [persistent] load-shedding, we have lower interest rates, and the negative impact of the pandemic is now fully reflected in the numbers.”
He adds that the sector has made impressive headway in restructuring portfolios by selling noncore and underperforming buildings. This has helped Reits pay down debt, with the average loan-to-value ratio dropping from a peak of 43% during Covid to a manageable 37%. Ndlovu notes that most disposals were done at or near book value, “so there’s been no desperate or fire-sale of assets”.
Several Reits have reinvested part of the proceeds from disposals in upgrading, refurbishing and extending properties, as well as installing backup power and water. In addition, dividend payout ratios have come down from 100% before the pandemic to about 86% on average, with the funds retained used for capital expenditure or to reduce debt. Ndlovu says the improved earnings growth outlook should lure more investors back to listed property, which in turn will support share prices.
While global risks persist, South African Reits are well positioned to navigate uncertainty’ -
— Garreth Elston
Though listed property as an asset class may not beat general equities again this year, the performance among individual property stocks is expected to remain divergent. Stock picking is now the name of the game.
Ndlovu notes that counters with higher earnings growth prospects (and potential for further upgrades) are likely to lead the pack over the remainder of 2025.
He adds: “It’s mostly about specialisation and more focused strategies, as opposed to being diversified or too diversified.” Ndlovu says a focus on strong sectors, regions and nodes has become a key performance driver. For example, Fortress and Equites are well placed to cash in on their specialisation in the industrial/logistics sectors, while Fairvest, Resilient, Exemplar Reitail and Dipula Properties will benefit from a focus on township and rural retail centres offering essential goods and value shopping.
The same goes for Spear and its exclusive regional focus on the Western Cape, and Attacq with its nodal approach at Waterfall City. Ndlovu says sector heavyweight Growthpoint Properties should hypothetically also reap the benefits of owning what is South Africa’s largest and arguably most successful mixed-use precinct, the V&A Waterfront. However, the property represents no more than 10% of Growthpoint’s total asset base, which is diversified across sectors, regions and countries.
While the outlook for domestic Reits has improved, Tilly and Ndlovu agree that investors should retain exposure to offshore stocks for portfolio diversification and a hedge against domestic volatility amid a fragile economy and political uncertainty. .
Ndlovu says counters with exposure to or expansion plans in Central and Eastern Europe (Nepi Rockcastle and MAS, depending on the latter’s corporate action outcome), and Iberia (Vukile and Lighthouse Properties) are likely to outperform.
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