South Africa

Marriott sticks to its cash call

Income specialist says investors should avoid property for now. Denise Mhlanga / 7 August 2009 18:48

http://www.moneyweb.co.za/archive/marriott-sticks-to-its-cash-call/

If you were thinking of putting cash into property, wait for now, Marriot Asset Managers urges. CEO Simon Pearse said early this year,” cash is still the best option for 2009″, and he confirmed this week that he hasn’t changed his view.

Giving an economic overview in Johannesburg on Friday, Pearse said property income streams are now more uncertain that ever as the recession takes its toll on just about every industry.

His reason for not being enthusiastic about property at the moment is the concern and worry about distribution growth, the income stream that property investors earn out of rent. He says there is far too much retail property stock (like shopping centres) in the market and, in the middle of an economic recession, investing in this type of property is even more risky.

When tenants cannot pay rentals, landlords suffer too, and the oversupply of retail stock is likely to impact rentals negatively. To help alleviate this, perhaps the South African commercial sector needs to ensure that new stock is fully occupied before adding more than needed.

Nevertheless, Marriot is not entirely disinvested from the retail sector of the market. Its property fund has an exposure of 27% in retail, 28% office and 44% in industrial.

The increase in electricity costs puts further strain on the commercial property sector. Pearse says the increase adds R5 to every square meter of retail space in South Africa.

With high inflation levels, any property investment should earn over-and-above inflation so as to achieve real returns.

Marriot believes that positive returns are likely to be achieved from other sectors of the stock market and in time local property rather than cash or bonds.

In this market, it is not about when one should buy, but rather what the circumstances are surrounding the acquisition and what prospects it holds. So before one goes out to spend loads of cash on property, do a good homework and look at where the market is headed, is his view.

Instead of buying property, Pearse reckons other sectors will deliver the goods for investors. Companies that can operate well even in a recession and produce reliable income streams, he said: include basic necessities such as food and healthcare. Think Netcare, cigarettes (British American Tobacco) and beer (South African Breweries) and telecommunications, he said.

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