South African Real Estate Research Articles

South African Real Estate Investment Trusts Prefer Tuesdays

This study examines the day-of-the-week effect on the returns of different classifications of South African REITs. Ordinary least squares regression (OLS), generalized autoregressive conditional heteroskedasticity (GARCH) (1,1) (2,1), and Kruskal–Wallis (KW) tests were performed on data obtained from the IRESS Expert database from 2013 to 2021. We found statistical differences in the day-of-the-week effects for SAREITs; the best day to invest in office REITs is Friday, for diversified REITs Thursday, and for industrial REITs Friday. Generally, Wednesday was found to be the least profitable day to invest in all REIT classifications because it had the least average daily return. Tuesdays were the most profitable days for all REIT classifications, with the highest average daily return. REITs traded the most on Fridays, while REITs traded the least on Mondays. Returns were the most volatile on Monday, while volume was the least volatile on Thursday. The KW test revealed a statistically significant difference between the median returns across days of the week. Based on the above, profitability is expressed on Tuesdays in South African REITs. By recognizing the day-of-the-week effect, investors can buy and sell South African REITs more effectively. This study, apart from being the first in the context of South African REITs, provides updated evidence of the contested calendar anomaly issues.

Competitive intelligence formalisation in the property sector: The emerging market study

Competitive intelligence (CI) enhances the quality of products or services and decision-making (Tarek et al., 2017). Despite formalisation having been identified as a cornerstone for CI, firms continue to practice it informally (Cavallo et al., 2021). Although CI formalisation has been investigated in other economic industries in South Africa, no study on the formalisation of CI has been conducted in the real estate sector (Cavallo et al., 2021). The objective of this research was to establish the formalisation of CI in the South African real estate sector. This research followed a quantitative research methodology using a web-based questionnaire to collect data from property practitioner firms in the South African real estate sector. The South African real estate sector is very competitive and firms practice CI to gain competitive advantage over their rivals. The findings indicate that the majority of property practitioner firms practice CI formally using different application software. However, the results indicate that property practitioner firms lack a CI system and do not appoint CI professionals. Although the majority of firms do not have a CI system and do not appoint CI professionals, they practice CI formally and use different application software during practice.

The Beta Factor in the REIT Industry

This study explores the beta factor in the South African real estate investment trust (REIT) industry. Using MASCOFLAPEC, historical, and Monte Carlo (vanilla, antithetic, and quasi-random) betas, the author confirms that the beta factor and volatility theory have the same intuitive explanation. Interestingly, the beta factor, as shown by quantitative and qualitative betas, appropriately accounts for the financial position and financial health of REITs. The alphas (Sharpe, Treynor, and Jensen) support the findings on the betas.

Information ethics enforcement challenges in the real estate industry: A study of the emerging economy

The South African real estate industry contributes to job creation, economic development and poverty eradication (Estate Agency Affairs Board [EAAB], 2020). However, it is challenged by unethical, unregistered, and non-complying property practitioners firms (EAAB, 2018). Moreover, some firms have inefficient systems that fail to combat hacking and cybercrime (Jardine, 2015). Although firms have strategies in place, there are still instances of unethical behaviour. The accuracy of information is also a problem in the sector. The sector also encounters illegal access including breaking password-protected websites (Johnson, 2015). Hence, this research aimed to examine the extent to which firms enforce information ethics (IE) and to explore the challenges experienced by the firms in the Gauteng province when enforcing IE. The research was both qualitative and quantitative in nature and web-based questionnaires and in-depth interviews were used to collect primary data. The research found that property practitioners firms enforce IE to a great extent. However, they do so with challenges, namely, lack of trust from clients, stricter legislative requirements of keeping records, cybercrime and hacking, lack of physical and electronic storage of information, and clients’ information easily accessible at the Deeds Office. Property practitioners firms should strive to enforce IE to a greater extent while reducing and eliminating these challenges.

Do Renewable Energy and the Real Estate Market Promote Environmental Quality in South Africa: Evidence from the Bootstrap ARDL Approach

Recent empirical research indicates that South Africa’s present level of wealth and energy, given its fast-expanding population, is unsustainable. Studies in this domain focus on the impact of economic growth and energy use on environmental quality; the role of the real estate market on environmental quality in South Africa is ignored in the emerging literature. The current study aims to deliver a fresh empirical analysis in this context by analyzing the impact of South Africa’s real estate sector expansion and renewable energy sources on carbon emissions. Using the newly developed “bootstrap autoregressive distributed lag (ARDL) approach”, the results of the empirical investigation showed that renewable energy improves South Africa’s environmental quality. The current research also shows that the South African real estate industry has a negative impact on the environment. According to the current research, South African policymakers should create new regulations for the sustainable real estate sector to improve environmental quality by encouraging the usage of and investment in renewable energy.

Are secondary equity offerings of Black Economic Empowerment (BEE) REITs less underpriced than non-BEE REITs?

PurposeThe purpose of this paper is to contribute to the literature on secondary equity offerings (SEOs) by examining the impact of the Black Economic Empowerment (BEE) policy on secondary equity offering (SEO) pricing dynamics of South African Real Estate Investment Trusts (REITs).Design/methodology/approachWith a sample of 152 SEOs of South African REITs from 2010 to 2020, ordinary least squares (OLS) models, fixed effect models, parametric and non-parametric tests were applied to test for the impact of BEE on the underpricing of SEOs.FindingsSignificant underpricing is discovered in highly compliant (BEE) REITs; in other words, SEOs pricing of BEE compliant REITs are more underpriced compared to non-compliant BEE REITs. With this, BEE compliant REITs and more so, highly compliant BEE REITs in particular leave more money on the table.Practical implicationsThe government is therefore aware of the impact policy interventions play when REITs raise financing through SEOS. With these, highly compliant BEE REITs will need to be more strategic when making BEE compliance decisions as this is shown in our study to impact the underpricing of SEOs.Originality/valueThis is the first study to investigate SEO underpricing for the BEE policy using the South African REITs context.

The impact of South African real estate investment trust legislation on firm growth and firm value

CITATION: Carstens, R. & Wesson, N. 2019. The impact of South African real estate investment trust legislation on firm growth and firm value. South African Journal of Economic and Management Sciences, 22(1):a2257, doi:10.4102/sajems.v22i1.2257.

Investigation into the Relatively Low Uptake of Residential Stock within South African Real Estate Investment Trusts

Since the establishment of the first South African Real Estate Investment Trust (REIT) in 2013, the listed property sector has seen significant growth with a current market capitalisation of R400 billion in comparison to 1998 where the market capitalisation was R5 billion. However, South African REITs invest less in the residential sector when compared to the global REIT market. The purpose of this research was to determine the factors that have attributed to this low uptake of residential stock. This was achieved using a qualitative survey consisting of semi-structured interviews with listed property fund managers and upper management from four REITs listed on the South African stock exchange. The findings indicated a number of factors that have influenced the low uptake of residential stock. These have been identified as the financial performance of residential real estate in South Africa, the nature of residential real estate, and the maturity of the REITs sector in South Africa. These findings make a valuable contribution to the very limited literature on REITs in South Africa. Furthermore, understanding these factors is crucial in further developing the REITs sector in South Africa which has the potential to catalyse broader developments for housing and the economy.

Anti-persistence and long-memory behaviour of SAREITs

PurposeThe purpose of this paper is to provide empirical evidence on the long-memory behaviour of South African real estate investment trusts (SAREITs).Design/methodology/approachThe study employs a battery of advanced techniques to examine the behaviour of returns of 29 SAREIT equities listed on the Johannesburg Stock Exchange. The authors analysed daily closing prices covering different periods up to 21 May 2016. The results provide support for long memory in majority of SAREIT returns.FindingsThe finding of negative fractional integration parameters provides evidence of anti-persistence in SAREIT returns.Practical implicationsIt is recommended that the regulatory authorities adopt technologies that allow a more effective, faster means to disseminate information, and improve the electronic trading mechanism that facilitates quicker price adjustment to news entering the market.Originality/valueThe paper determines the fractional differencing (long-memory) parameter for SAREITs and adds value to the existing body of knowledge.

The effect of gold market speculation on REIT returns in South Africa: a behavioral perspective

This study provides novel insight to the evolution of herd behavior during crisis periods by relating the time-variation in investor herding to speculation in gold, an asset traditionally considered a safe haven during periods of market crisis. We find that higher level of speculation in gold significantly contributes to herding in the emerging South African real estate investment trust (REIT) market, particularly during the mid-2008 to 2011 period, matching the duration and aftermath of the global financial crisis. The evidence of herding in this market is in contrast to the static and two-regime model specifications that fail to detect herding, underscoring the significance of econometric specifications that directly track the time-variation in herd behavior. Our findings suggest that speculative activities in the gold market contain valuable information regarding market fundamentals that drive investor behavior in emerging markets and that regulators should monitor indicators of speculative activities in gold in order to implement circuit breakers in their markets that may help mitigate the negative effects of herd behavior.

Geographic Diversification Issues in Real Estate Markets in Africa

The purpose of this paper is to establish the barriers to entry in African real estate markets from a South African investor's perspective. Questionnaires were administered to 36 listed property companies on the Johannesburg Stock Exchange and data on diversification strategies was gathered from annual reports. We find that property rights are the most substantial market selection criteria that South African listed real estate companies consider and the main barrier to entry into the African markets is legal and title risk. We also find that geographic diversification within South Africa is a strategy mostly adopted by listed South African real estate companies. Central Africa is ranked as the region with the highest criteria for barriers to entry while Nigeria ranked highest in terms of country. Ghana is an investment destination for South African real estate investors. For African countries to attract real estate investment from South Africa, they need to improve their legal and property rights regulations.

Determinants of the upswing phase in the South African real estate growth cycle

Understanding and predicting cycles in real estate prices would allow investors to maximise their investment in real estate. This paper builds on the work of a previous study and includes a regression analysis of the upswing phase of the residential real estate growth cycle, which is intended to identify potential leading indicators of an upswing phase in the residential real estate cycle. The results for the upswing phase indicate that house prices, interest rates, growth in household consumption, growth in the South African All Share Index and growth in the Rand-Dollar exchange rate, all lagged by one quarter could be considered to predict the upswing phase of house prices.

E-service quality: An investigation of its key dimensions and the discriminatory power in the residential property sector

Research Statement: With an increase in competition within the South African property sector, real estate agencies need to ensure that their channels are as effective as possible. Using the Internet and mobile technologies represents a new means to reach customers and achieve lower operating costs. This study seeks to ascertain which factors potential buyers consider important when perusing residential property in an online environment. Hence, the dimensions of e-service quality, which constitute their online experience, will be explored. In addition, this research explores buyer typologies and probes whether other forms of technology, such as a mobile interface, may be of commercial value to the realtor. Methodology: The empirical analysis was conducted by means of a quantitative survey. A questionnaire was designed to test the application of the e-service quality construct in the South African real-estate sector. Data was obtained from 300 respondents, across the age spectrum, who filled the criteria of being prospective buyers. Convenience sampling was primarily used to collect responses as the researchers were unable to obtain access to a specific database of listed property buyers. Results & Conclusion: As mirrored in other studies of this nature, it was found that trust is paramount when initiating property sales online. All other variables in the construct (site features, information, accessibility, communication, reliability, responsiveness and personalisation) also proved significant. A cluster analysis revealed that older respondents preferred a higher level of support - across all attributes of e-service quality - when interacting with online property services. Lastly, the mobile interface appears to appeal to 'students' as well as 'mature workers'. It is surmised that these individuals have access to smart phones capable of being used for accessing property portals. However, the 'young workers' appear less enthusiastic about the mobile interface, seemingly preferring to either access such portals via the Internet or visiting agents personally.

Structured finance in the South African real estate market: who are the winners — borrowers or lenders?

AbstractStructured finance, in this paper, refers to structures developed by banks, to finance real estate developments or investments, which separate the debt and equity components of real estate. The debt component or loan amount is the present value of the lease cash flow. The equity component is the value of the real estate at the end of the lease period. These complex structures incorporate significant tax benefits.This paper examines the current position of structured finance in the South African real estate market. The focus is on up‐market decentralised areas. The research aims to establish the benefits of structured finance for both lenders and borrowers. The research was initiated by a pilot study of a specific financing structure for a decentralised office development (Evans 2000). This pilot study raised the question of ‘who were the winners?’ in the deal.The research has been conducted with the participation of selected banks and consultants who are the lenders and creators of the structures, as well as with the users who are the real estate investors or developers. A survey, in the form of structured, in‐depth interviews was conducted with eight banks, two structured finance consultancy firms, eight developers and two investors, all of whom are active participants in the structured finance market.As the criteria surrounding each deal vary, a ‘deal specific’ finance structure is created for each development or investment. This has led to the information collected being portrayed qualitatively. However, because of the confidential nature of each structure, research focuses on general rather than specific structures.This paper examines first the aims of structured finance and the method of achieving these aims; secondly, the criteria for banks entering into these structures; and thirdly, the structure and tax risks which are invariably passed on to the borrower. Results of interviews reveal that banks and borrowers benefit from these finance structures by maximized loan amounts and fixed interest rates. The potential tax obligations, however, may have a significant financial impact on borrowers. Copyright © 2002 Henry Stewart Publications

The Real Estate Markets in South Africa

South Africa has undergone significant political, social, and economic change in the last ten years, as it has emerged from the apartheid era. This article presents an overview and analysis of the South African real estate market over the 1980-99 period, including overall performance analysis, an assessment of the portfolio diversification benefits of real estate, and performance analysis in the post-apartheid period of 1994-99. The future outlook for the South African economy and real estate market is also critically assessed.