The Sapy is an FTSE/JSE index of the top 20 liquid real estate investment trusts (REIT) by market capitalisation. 80% of a REIT's assets must be in property and they are required to earn at least 75% of their income from rentals and pay out 75% of their earnings in the form of a distribution to shareholders. Those dividends (unlike other dividends) are added to the investor's taxable income. In the past five years, there have been many new REITs listed on the JSE, but during 2018, the Resilient group of REITs (Resilient, Greenbay, Fortress and NepiRockcastle) were the subject of a damning report by 360ne Asset Management, which claimed that their high share prices were due to their cross-shareholdings rather than natural market forces. The shares of these REITs fell by 50% or more and took the JSE Sapy index down with them. To this must be added the fact that the economy is in a technical recession and office properties particularly have seen rising vacancies and much more competitive conditions. In general, property offers private investors an extremely secure dividend-paying investment and now might be a good time to buy good-quality REITs. However their recovery will probably be slow and measured as the South African economy recovers. Many of the larger REITs listed on the JSE also have significant exposure to property in Europe which gives them a rand-hedge component and enables them to benefit from the recovery in the European economy.
Share this glossary term: