As seen within the South African market, the choice of asset classes is limited to the traditional four: office, retail, industrial and residential. These asset classes may perform well in the long term but are expected to churn out short term returns consistently. This creates a mismatch of expected return and performance. The reason why the expected returns are not met is that investors do not anticipate the cyclical nature of the economy. Often, when the asset class under performs, investors dump the asset, taking an immediate loss as opposed to riding out the property cycle and waiting for such asset to perform.
Now, the traditional sectors are saturated and presents a hard market for investors and their short term expectations. However, there are alternative asset classes within the traditional sectors that could be profitable with rental growth but would need innovation and intervention to gain the full benefits. Asset classes such as storage, hospitality, data centres are barely defined as investment alternatives. Currently, capital is flowing into healthcare, student housing and logistics but more can be done within these niche markets and has both a social and economic return.
Fiscal and monetary policies have done a lot to cushion the blow of the pandemic but the local market needs to revisit the niche opportunities for investors within alternative spaces to create diversified products.
Tips for rebalancing portfolios consists of:
- Focusing on domestic portfolio
- Having clean and transparent shareholding structures
- Back to basics and focusing on property fundamentals (location, rentals, quality tenants)
- Focusing on the investment strategy (get rid of non-core products)
- Having more “Green” aspects to increase market prices
Lastly, due to the slowdown of portfolio expansion in REITs and many delistings of public assets predicted in the future, there has been more private equity injected into the market. It is speculated that the formation of closed-end funds, family offices and better-quality product will emerge in the future. Whichever way the investment goes in the future, more trading will result, bringing greater visibility, proper scrutiny over pricing and capitalization rates are based on real data.