South Africa’s real estate investment sector is a burgeoning market, as local authorities have managed to avoid some of the pitfalls that many other countries have suffered in the implementation of a real estate investment trust (Reit) regime.

“South Africa’s Reit regime is comparable to some of the best in the world, with other countries having had to take a lot of steps before achieving workable Reit structures, whereas South Africa, to its credit, went straight to a workable model,” investment management corporation BlackRock MD and global real estate securities group co-global chief investment officer James Wilkinson told Engineering News Online.

He added that South Africa was an interesting place to look at.

“We expect the global real estate sector to keep broadening and deepening. Overall, the size of the real estate listed market has tripled in the last ten years.

“I don’t think people are quite aware of the scale of growth in listed real estate markets. If we look at global markets, it has gone from a $1-trillion market capitalisation ten years ago to just over $3-trillion today and South Africa is part of that story, with about a $20-billion market capitalisation,” he stated, adding that the country now had about 30 Reits.

Wilkinson further explained that Reits had changed the property investment spectrum, as their structures and income focus suited investors of all types.

“Whether you are institutional or a private investor, the key attraction to real estate is a relatively high, stable income return. Diversified listed Reits just make real estate investment so much more accessible,” he added.

DIVERGENT REAL ESTATE
From a global perspective, Wilkinson noted that there had been significant flows of equity into real estate markets and, increasingly, flows of debt capital, highlighting that banks were becoming increasingly willing to lend debt capital into markets.

“In terms of where that equity is focused, it is very broad-based. We have seen significant equity capital coming into the US, but also into European markets – partly seeking income, but seeking an alternative place to put equity, as bond yields have been pushed down by impending quantitative easing.

“The most exciting thing for us as real estate security managers, is that there is a huge amount of opportunity around the world. I have been talking to people about what we are labelling the divergence dividend in global real estate securities.

“We’ve got half of the developed globe, where people are focused on interest rate rises and monetary policy tightening and economic growth coming back, such as the US and the UK, while the other half of the developed world is really focused on further stimulus and interest rate declines,” Wilkinson said.

He emphasised that, with the current economic growth experienced in the US and UK, these countries were also real targets for investment, while in the Eurozone and Japan, real estate growth was rather stimulated by the continuing focus on people seeking income and an income return.

He concluded by noting that, in many countries, including South Africa, investors tended to access real estate locally and physically, but noted that, if investors broadened their horizons and widened their opportunity sets to include global real estate, real benefits could be reaped.