Given higher inflation and interest rates, you might have expected the listed property sector’s recovery to have come to a screeching halt. Instead, several stocks continue to trade at seven-year highs.
This week the all property index was still hovering around the 12,000 mark, down only 7% from the multiyear peaks reached at the end of February before the US attacked Iran.
The sector’s resilience has no doubt been supported by the recent spate of impressive results: most counters have returned to inflation-beating dividend growth, concluded heavily oversubscribed capital raises and made several high-stakes acquisitions.
Corporate action has intensified in recent weeks. In a surprise move, the Public Investment Corporation (PIC), on behalf of the Government Employees Pension Fund, launched a R1.12bn bid to buy 49.7% of small-cap residential developer Balwin Properties with the aim of delisting the company. Balwin founders, including CEO Stephen Brookes, MD Rodney Gray and GRE Africa, which is related to Buffet Investments, will remain invested alongside the PIC through the proposed private ownership structure and retain a majority 50.3% stake.
Balwin is the second small (and highly illiquid) property stock that may go private this year. Market talk is that RMB Holdings will also potentially delist after a buyout agreement with AttBid, an investment vehicle owned by the co-founders of WeBuyCars, Faan and Dirk van der Walt, alongside Atterbury Property Fund.
The Balwin announcement coincided with a colossal R2.8bn capital raise by prolific dealmaker Vukile Property Fund, which announced its intention to enter Italy with the acquisition of three shopping centres for about R2.23bn. In March, it added 50% of the 54,689m² Splau Shopping Centre in Barcelona to its portfolio of more than 20 Spanish and Portuguese shopping centres for about R3.3bn.
Vukile’s retail portfolio, which includes several township malls in South Africa, is fast approaching R60bn, split 66/34 between Europe and South Africa. Management, under CEO Laurence Rapp, has been sniffing around other European countries for some time before settling on Italy as its next offshore investment destination. Vukile will be the first JSE-listed property stock to offer South African investors access to the Italian real estate market.
In another big-ticket deal, Hyprop Investments, which owns Rosebank Mall in Joburg and Canal Walk in Cape Town, is splurging R2.3bn on Galleria Burgas, a 36,700m² shopping centre in the Bulgarian port city of Burgas. The acquisition will bring Hyprop’s mall portfolio in Eastern Europe to five and aligns with its strategy to expand its retail footprint in the region.
Spear Reit, the JSE’s only property stock with 100% exposure to the Western Cape, last month clinched a R960m deal to buy a portfolio of three office blocks spanning 28,500m² in Tyger Valley, Cape Town. That follows a successful R1bn capital raise in April and is Spear’s third big-ticket acquisition since mid-2025. The first two were the R442m purchase of the 19,642m² Watergate Centre in Mitchells Plain and the R455m acquisition of Maynard Mall, a 25,969m² convenience centre in Wynberg.
In yet another book build, Fairvest raised R900m, above the initial target of R500m. Emira Property Fund, meanwhile, made a cheeky play for Octodec Investments, assembling a 23.5% stake; it had hoped to acquire 34.9% in a voluntary offer to shareholders.
Vacancy metrics are stabilising across the better-quality portfolios
— Garreth Elston
Independent property analyst Keilen Ndlovu says the “phenomenal” uptake of recent accelerated book builds — mostly at premiums to market pricing — reflects the extent to which sentiment towards listed property as an asset class has improved, especially among institutional investors, which two years ago were still steering clear of the sector. He says while there was lots of capital to participate in equity raisings in the first quarter, activity was put on hold in March due to the Middle East conflict. It has since resumed as markets stabilised.
Ndlovu notes that recent wheeling and dealing have been supported by stronger balance sheets and a return to inflation-beating earnings growth. The sector has delivered guidance-beating results from late last year into 2026. Earnings have been boosted by lower debt funding costs and increased letting activity, which has led to lower vacancies and higher rentals. In May alone, at least eight counters, including Redefine Properties, Spear, Octodec, Dipula Properties, Collins Property Group, Equites Property Fund, Exemplar Reit and Emira released better-than-expected earnings growth, with most upgrading their numbers for the next six to 12 months.
Sector heavyweight Redefine Properties lifted its guidance for distributable income for the year to August to 6%-7%, up from 5%-6%, after posting a solid set of results for the six months to February. The company, one of the largest mall owners in South Africa, reported a particularly pleasing turnaround in its retail portfolio, with rental reversions on lease renewals turning positive to the tune of 3%.
Spear delivered 6.02% dividend growth — ahead of its 4%-6% guidance — for the year to February and upgraded its growth expectations for its 2027 financial year to 6%-8%. Spear has been a major beneficiary of the real estate rally in Cape Town, where even the office market, which is still subdued in other cities, is starting to see demand outstrip supply in certain pockets. Office vacancies in the Mother City have dropped to a record low of 2.7%, significantly below Joburg’s 13.8%, according to recent figures from the South African Property Owners Association.
Dipula, which owns a portfolio of more than 80 convenience shopping centres that cater mostly to low- and mid-income shoppers, upgraded its earnings growth guidance for the year to August from 7% to 7%-8% on the back of a marked increase in letting activity, which led to a healthy 6% rental reversion.
Still, despite upbeat earnings growth numbers and plenty of support for capital raises, analysts expect some caution to start setting in after last week’s 25 basis point rate hike and a jump in inflation from 3.1% to 4% in April.
Ian Anderson, head of listed property and portfolio manager at Merchant West Investments, says the 34% total return achieved by domestic real estate investment trusts for the 12 months to the end of April (despite the 12% pullback in March) is unlikely to be repeated over the next year. At least 10 stocks, led by Octodec, Delta Properties and Emira, delivered a total return exceeding 45%. But Anderson now expects the next phase of returns to be “more selective”.
He says the easy part of the rerating may now be behind the sector. Still, he believes that funds with resilient retail, logistics and self-storage exposure, disciplined leverage, low vacancies and the ability to raise and deploy capital judiciously are well placed to outperform into 2027.
Garreth Elston, MD of Golden Section Capital, shares the sentiment and believes that the easy money has been made. While the property sector is still holding up well, he says, the picture can change quickly given the potential for a few more months of massive fuel price increases and another interest rate hike.
On the upside, Elston says the latest round of results confirms that the South African listed property sector is delivering “genuine operational improvement”, with distributable income growth running ahead of prior-year comparatives. “Vacancy metrics are stabilising across the better-quality portfolios and management guidance has been upgraded at a meaningful number of counters. The numbers are good.”
He says recent results may be signalling that the sector has likely crossed from a rerating phase into an earnings growth phase. Elston tells the FM that these two environments demand very different investor approaches. “The rerating phase, characterised by wide NAV discounts, depressed sentiment and the structural dislocation of the post-Covid and load-shedding years, rewarded buying cheaply and waiting for multiples to compress. By contrast, the earnings growth phase requires the underlying fundamentals to do the heavy lifting.”
The problem, says Elston, is that earnings growth, while real, is not particularly exciting at current cost bases, and the stocks that were pricing in 35%-45% discounts to NAV have closed much of that gap.
His overall read is that the sector now sits in a zone of “respectable but uninspiring” growth. “The recovery narrative, as a collective sector call, has largely run its course. What follows is a stock-specific, fundamentals-driven phase.”
Elston reckons subsector positioning, with a bias towards industrial/logistics property and necessity-anchored retail over offices and secondary malls, balance sheet quality and hedging discipline will differentiate the winning property stocks from the losers.
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