The listed property companies with big market capitalisations are expected to show little or no earnings growth for at least a year, according to the Standard Bank Property Income Fund's latest view of the listed property market.

Mariette Warner who is head of fund management and securitisation at Standard Bank properties and manager of the Standard Bank Property Income Fund says the weakness in the listed sector among the large property unit trusts such as Grayprop, Sycom and Martprop, and property loan stock companies Growthpoint and Pangbourne, is linked to inflation and interest rate uncertainty.

Warner says this has caused weakness in the bond market and, because the listed property market closely follows long bonds, it has also been affected.

However, Warner expects to see growth from a number of the funds with smaller market capitalisations from the fourth quarter onwards.

But growth from such funds as Octodec, Premium and Metboard will come off a low base.

Warner says that when the office market recovers, the sector in general shows a recovery about 12 to 18 months later.
She says indications from people doing letting exercises are that the office market is at the bottom of the earnings cycle.
"Given that we are coming from the bottom, it's not impossible that earnings growth could exceed inflation over the next few years," she says.

Recently, the management of the listed sector has improved dramatically relative to the longer-term industry, and this must improve average earnings growth going forward, she says.

As far as newer listings are concerned, Warner says they have varied in quality dramatically, because management experience, portfolio quality, location and complex capital structures have worked against them.

"The market has now learnt to keep it simple, price correctly according to quality and ensure management expertise is in place," she says.

Warner expects that new listings coming into the market in the future will not disappoint as badly as a few of the newer ones have recently done.

Last week there was speculation that Sycom would have to adjust the offer price of the new units to be issued in its capitalraising exercise given the recent weakness in listed property stock in general.

Sycom plans to develop its portfolio with acquisitions, investments and refurbishments worth about R500m.
There was speculation aplenty in the market that Sycom wanted to price the units at 9,30c, but may have to lower this to 9,10c.

Angelique De Rauville, MD of listed asset management company Provest which is part of Investec Bank and does monthly reports on the listed property sector said last week that there was a possibility Sycom would have to adjust the new unit price because of the softening in the sector and a flow of capital to general equities.

De Rauville reiterated her views that the softening property sector was due to investors "flighting into general equities from the listed property sector".

De Rauville says the market has known for a while that growth out of large funds like Grayprop and Growthpoint will be fairly pedestrian this financial year.

She says Pangbourne and Martprop have followed similar patterns. None of the funds has disappointed.

"They have delivered modest earnings growth or flat earnings and this has always been in line with projections."
She says that although people think optimistically about equities now, it does not mean listed property is not offering value.

De Rauville says that in a year's time investors may look at general equity investments and realise that listed property performs well consistently.