Property prices dropped on the Johannesburg stock exchange at the end of last month. Property shares are held in property unit trusts and balanced funds. When the price of property shares dropped it had an effect on property unit trusts, with the average drop being -8.57%. Luckily the market has recovered and shares have increased by 2.63% in the last 10 days.
Below is a great article by Melvyn Lloyd of Sanlam Glacier on the topic.
Property is a hybrid asset class with a high positive correlation to bonds. This basically means that when bond yields for example rise, property yields will follow suit, although not necessarily to the same degree. The opposite also holds true, when bonds yields drop, so does property yields.
So during the last week of May foreigners were net sellers of our bonds, to the tune of just over R6bn. On Thursday, 30 May, foreigners sold a net R5.5bn of our bonds. To put this into perspective, this was the biggest one day sell-off since September 2011. This lead to significant bond market weakness and the subsequent jump in long bond yields (R186) from 7.055% to 7.57%.
Due to the high positive correlation between property and bonds, property yields followed suit and rose from 5.81% to 6.34%. This represented a percentage point jump of 9.21.
So, due to the inverse relationship between property yields and property prices, as can be seen in the graph below, property prices plummeted.
Property prices dropped a massive 8.25% during the last week of May. This obviously has a knock on effect on property unit trust funds. The worst performing property unit trust over the last week of May lost 10.88%. The best performing property fund lost 4.57% and the category average retuned -8.57%.
The SA Listed Property Index has subsequently recovered “some” of the above-mentioned losses. The index is up 2.63% since the 31st of May 2013.
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