Foreign investment and South African real estate investment trusts (REITs)

Carstens, Margaretha (2018-12)

Thesis (PhD)--Stellenbosch University, 2018.

Thesis

ENGLISH SUMMARY : Real estate investment trusts (REIT) were introduced in South Africa in 2013 and follow the global REIT standard that originated in the US during the 1960s. The previously existing South African property investment vehicles, property unit trusts (PUTs) and property loan stocks (PLSs) were transformed to REITs. One of the main motivations for the introduction of REITs in South Africa was to make the listedproperty sector more attractive to foreign investors. This dissertation investigated three research questions in the context of foreign investments in SA REITs. First, it analysed whether SA REITs are attractive to foreign investors from a portfolio point of view. Using quadratic programming and the perspective of a foreign investor with US REIT investments, this study found that adding SA REITs to a portfolio of US REITs has diversification benefits in terms of a reduced portfolio variance and an increased Sharpe ratio. However, SA REITs with predominantly foreign holdings, particularly in Europe, have superior diversification benefits to foreign investors compared to SA REITs with predominantly South African holdings. Second, this dissertation investigated the macroeconomic, capital and property-market factors that drove foreign investments in SA REITs after May 2013 (REIT period) and in the alternative listedproperty vehicles prior to May 2013 (pre-REIT period). The results suggest that the impact of country-specific pull and non-country-specific push factors on foreign REIT investor behaviour changed over time, with push factors driving SA REIT investment in the REIT period and pull factors determining investment in the pre-REIT period. The impact of these factors on foreign REIT investments further differs for REIT market capitalisation (cap), with push factors driving large-cap REIT investments and pull factors affecting small-cap REIT investments. Thus, the attractiveness of SA REITs to foreign investors was not only driven by factors specific to South Africa, but also by factors specific to other countries, particularly the US and Europe. Third, this dissertation aimed to answer whether the introduction of REITs in South Africa has met the objective of attracting more foreign investors and improved the liquidity in the listed-property market. Results suggest that, following the introduction of REITs, foreign investors have indeed had a significant impact on REIT share liquidity as captured by activity measures (turnover and trading volume). On the other hand, the introduction of REITs has eliminated the negative impact foreign investors had on the friction dimensions of liquidity (bid-ask spread and price impact). The findings of the three chapters in this dissertation contribute to the literature on international REIT investment, and investment in emerging markets such as South Africa in particular. In addition, the study has implications for REIT investors, SA REITs and policymakers concerned with attracting foreign portfolio investment and developing listed-property markets. Other emerging economies that are contemplating the adoption of the REIT structure are likely to benefit from the increasing knowledge regarding foreign REIT investments, particularly with regard to liquidity implications and foreign investment drivers.

AFRIKAANSE OPSOMMING : Eiendomsbeleggingstrusts (REITs) is in 2013 in Suid-Afrika bekend gestel en is gebaseer op die internasionale standaarde wat gedurende die 1960’s in die VSA ontstaan het. Die bestaande eiendomstrukture, naamlik eiendomseffektetrusts (PUTs) en eiendomsleningsaandele (PLS’s) is hiermee omskep in REITs. Een van die vernaamste redes vir die omskakeling na REITs was om Suid-Afrikaanse genoteerde eiendomsbeleggings meer aantreklik te maak vir internasionale beleggers. Hierdie studie ondersoek drie navorsingsvrae ten opsigte van buitelandse belegging in SA REITs. Eerstens ondersoek die studie of SA REITs aantreklik is vir buitelandse beleggers vanuit ʼn portefeulje-oogpunt. Die studie beskou die beleggings vanuit die perspektief van ʼn buitelandse belegger wat in VSA REITs belê het, en gebruik dan kwadratiese programmering om te toon dat, deur SA REITs by ʼn portefeulje van VSA REITs te voeg, die belegger diversifikasievoordele ten opsigte van ’n laer portfeuljevariansie en ʼn verhoogde Sharpe-maatstaf ontvang. Die studie vind egter dat SA REITs wat in internasionale eiendom (veral Europese eiendom) belê, beter diversifikasievoordele bied as REITs wat hoofsaaklik in Suid-Afrikaanse eiendom belê. Tweedens ondersoek die studie mikro-ekonomiese faktore en faktore in die kapitaalmark en eiendomsmark, wat beleggings in SA REITs na 2013 en beleggings in die alternatiewe opsies vir eiendomsbeleggings voor 2013 bepaal. Die resultate toon dat die impak van trek-faktore (met spesifieke lande verbind) en stoot-faktore (nie met spesifieke lande verbind nie) op die gedrag van buitelandse beleggers oor tyd verander het. Stoot-faktore was bepalend vir belegging in SA REITs in die tydperk nadat REITs ingestel is, en trek-faktore vir beleggings in soortgelyke instrumente in die periode voordat REITs ingestel is. Die impak van hierdie faktore op buitelandse belegging in SA REITs verskil ten opsigte van REITs se markkapitalisasie. Stoot-faktore bepaal die belegging in REITs met ʼn groot markkapitalisasie, en trek-faktore is bepalend vir belegging in REITs met ʼn klein markkapitalisasie. Gevolglik word die aantreklikheid van SA REITs vir buitelandse beleggers nie net bepaal deur faktore wat spesifiek is aan Suid-Afrika nie, maar ook deur faktore wat spesifiek is aan ander lande, vernaamlik die VSA en Europa. Derdens beantwoord die studie die vraag of die bekendstelling van REITs wel geslaag het om meer buitelandse beleggers te lok en sodoende die likiditeit van die genoteerde-eiendomsmark verbeter het. Die resultate dui daarop dat die bekendstelling van die REITs wel ʼn beduidende impak op REITlikiditeit gehad het, soos blyk uit die aktiwiteitsmaatstawwe (omset en verhandelingsvolume). Die bekendstelling van REITs het ook die negatiewe impak wat buitelandse belegging gehad het op die wrywingsmaatstawwe (die verskil tussen pryse aangebied en pryse gevra, en die impak van verhandeling op pryse) van likiditeit in die tydperk na die instelling van REITs geëlimineer. Die bevindinge van die drie aspekte in die studie maak ʼn bydrae tot die kennisbasis oor internasionale REIT-beleggings en kan deur beleidsvormers in Suid-Afrika en ander ontwikkelende lande gebruik word. Die bevindinge van die studie dra by tot die literatuur oor internasionale REITbelegging en belegging in ontwikkelende lande soos Suid-Afrika. Die studie het implikasies vir REIT-beleggers, SA REITs en beleidvormers met betrekking tot die aansporing van portefeuljebelegging in SA REITs en die ontwikkeling van genoteerdeeiendomsmarkte. Ontwikkelende lande wat die REIT-struktuur oorweeg, kan verder moontlik baat vind by die kennisbasis oor REIT-beleggings deur buitelandse beleggers, veral ten opsigte van likiditeitsimplikasies en die bepalende faktore vir belegging in SA REITs.

Please refer to this item in SUNScholar by using the following persistent URL: http://hdl.handle.net/10019.1/105092
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