South African unit trusts turn back to property

Two years ago, South African real estate hardly featured in local wealth and pension portfolios. But the tide is turning as investors plunge back into the asset class with fresh vigour.

Property‑focused unit trusts have been the biggest beneficiary of the rebound, with money flows to the sector surging to seven‑year highs.

Net flows to the 49 domestic property unit trusts reached R2.31bn in 2025, as shown by figures from the Association for Savings & Investment South Africa. That signals a sharp reversal from 2024 and 2023, when there were huge outflows of R2bn and R3.2bn respectively. The last time there was a meaningful inflow of capital to domestic real estate unit trusts was in 2018 (see graph).

That’s pushed the size — or total value — of the real estate unit trust sector to R56bn, up from a 14‑year low of about R38bn in 2023. Independent property analyst Keillen Ndlovu says R1.86bn of last year’s R2.31bn inflow was recorded in the fourth quarter.

Money flows to unit trusts that invest in offshore listed property also picked up notably in the fourth quarter to R879m, but Ndlovu says offshore property funds still ended the year in the red (down R428m) after big outflows from January to September. He ascribes the fourth quarter’s reversal to investors probably viewing the strong rand and cheaper global property valuations as a good entry point.

He adds: “However, the mood domestically signals a preference for local over offshore property unit trusts.”

Ndlovu notes that despite domestic property unit trusts regaining favour last year, real estate still represents only 1% of the total asset allocation among South African unit trust investors in 2025, down from 4% in 2015. Still, there’s likely to be a further recovery in 2026 as the earnings and dividends reported by JSE‑listed real estate investment trusts (Reits) rebound.

Ndlovu expects property stocks to deliver average earnings growth of 5%-7% for their 2026/2027 financial years, a welcome change from the average drop of 3%-5% reported in 2025. He expects this growth trend to continue for the next two or three years.

Ndlovu’s research confirms that domestic real estate is firmly back on investor radars. An annual survey among 25 South African pension funds, wealth and asset managers shows that 48% were underweight to South African listed property, with only 16% adopting a neutral to overweight and overweight stance two years ago. In 2026, the underweight portion dropped to 12% while those that are neutral to overweight and overweight rallied to 40%.

The latest performance figures from FundsData confirm that domestic real estate unit trusts continue to outshine their global counterparts, with an average total return of 38% vs -3% (for the 12 months to February 19).

The top domestic property unit trust over one year is Metope Property Income Prescient Fund, which delivered a stellar 46% (see table).

Asked what drove the fund’s outperformance, Metope CEO and portfolio manager Liliane Barnard tells the FM: “We are not benchmark‑driven — allocations reflect where we see the strongest combination of earnings visibility, strengthening balance sheets and improving growth momentum.”

She adds that the portfolio is income‑focused, “with positions selected for their ability to deliver attractive cash flow yields supported by improving growth prospects”.

Unusually for Metope, it has both of the South African sector heavyweights, Growthpoint and Redefine, among its top 10 holdings. Both are diversified across the retail, office and industrial sectors.

That’s a reflection of our conviction that the domestic cycle has turned and that property fundamentals are steadily improving

—  Liliane Barnard

Still, her preference is for specialist players, with Metope’s most active positions being Dipula Properties, Fairvest, Octodec Investments and Spear Reit. “That’s a reflection of our conviction that the domestic cycle has turned and that property fundamentals are steadily improving.”

Why these four stocks? Barnard says Dipula provides direct exposure to the country’s economic recovery through its defensive retail portfolio, which is focused on urban, township and rural community shopping centres. “The stock offers an attractive income yield of around 8% with the potential to deliver above‑sector dividend growth in the medium term.”

Fairvest (B shares) similarly has a retail focus and provides strong leverage to the domestic consumer through its focus on neighbourhood and commuter centres. “We favour the management team’s disciplined capital allocation and execution, alongside initiatives such as fibre infrastructure and renewable energy that support margin expansion.” Barnard adds that Fairvest’s combination of defensive income and growth potential positions dividend growth towards the upper end of the sector over the next few years.

She likes Octodec because it’s one of the largest property owners in Pretoria and Joburg, with a long operating track record and “deep expertise” in inner‑city housing and retail markets. “The business is directly leveraged to a recovery in the South African economy and offers an attractive dividend yield above 9% at a sub‑80% payout ratio, providing scope for further distribution growth over the medium term.”

Spear’s inclusion in the fund is supported by it being the only South African Reit that offers pure exposure to the Western Cape, which Barnard refers to as “one of South Africa’s most resilient and in‑demand regions”. She says the portfolio has demonstrated consistent performance through the cycle, supported by a management team with a strong operational track record. “Attractive regional fundamentals and sustained demand dynamics should continue to underpin Spear’s operational performance and valuation trajectory.”

The strong rebound in returns from South African listed property raises the question: will there be a marked return of offshore investors? (Many left the sector before the pandemic.)

Peter Verwer, global Reit expert and chair of Australian‑based advisory firm Futurefy, says South African listed property is not yet back on global fund managers’ radars. Speaking at the South African Reit Association’s recent conference in Joburg, he noted that most international investors have a “narrow bandwidth”, with South Africa generally falling outside their investment universe.

Even large developing markets such as China and India have only recently started to garner international attention. Still, Verwer believes the growing size of the South African Reit sector — now ahead of Hong Kong by market cap — is a “very positive story”. Over the three years to January, South African Reits delivered the highest total returns of all markets globally in local currency terms, he added. “It’s the perfect time to relaunch the sector’s investment case on the global stage.”

Joanne Solomon, CEO of the South African Reit Association, agrees that offshore capital has yet to return meaningfully. She says between 2016 and 2018, large‑cap Reits attracted substantial foreign inflows, with giant asset managers including Vanguard and BlackRock building up positions. At its peak in 2019, foreign institutional ownership in Growthpoint, for example, reached 31%.

But she notes that successive shocks — sovereign downgrades, governance controversies, MSCI weight cuts, Covid dividend disruptions, riots, floods and high interest rates – eroded confidence and triggered forced selling.

The picture is stabilising. Growthpoint’s foreign shareholding rose from 13% to 18% in the 12 months to June 2025. Solomon says the 2016‑era wall of passive money may not return, but “high‑conviction, specialist capital” is beginning to take notice.

With two years of exceptional performance, with total returns of 35.8% and 38.6% in 2024 and 2025, coupled with dividend growth accelerating to 10% and stronger balance sheets, she says domestic Reits now offer “alpha returns with beta‑level risk”. Solomon adds: “That is a compelling proposition for any quantitative global allocator.”