The performance of the Broad Based Black Economic Empowerment compliant listed property firms in South Africa
| DOI | https://doi.org/10.1108/JPIF-09-2014-0061 |
| Date | 01 February 2016 |
| Pages | 3-26 |
| Published date | 01 February 2016 |
| Author | Omokolade Akinsomi,Katlego Kola,Thembelihle Ndlovu,Millicent Motloung |
| Subject Matter | Property management & built environment,Real estate & property,Property valuation & finance |
The performance of the Broad
Based Black Economic
Empowerment compliant listed
property firms in South Africa
Omokolade Akinsomi, Katlego Kola, Thembelihle Ndlovu and
Millicent Motloung
The School of Construction Economics and Management,
The University of Witwatersrand, Johannesburg, South Africa
Abstract
Purpose –The purpose of this paper is to examine the impact of Broad-Based Black Economic
Empowerment (BBBEE) on the risk and returns of listed and delisted property firms on the
Johannesburg Stock Exchange ( JSE). The study was investigated to understand the impact of Black
Economic Empowerment (BEE) property sector charter and effect of government intervention on
property listed markets.
Design/methodology/approach –The study examines the performance trends of the listed and
delisted property firms on the JSE from January 2006 to January 2012. The data were obtained from
McGregor BFA database to compute the risk and return measures of the listed and delisted property
firms. The study employs a capital asset pricing model (CAPM) to derive the alpha (outperformance)
and beta (risk) to examine the trend amongst the BEE and non-BEE firms, Sharpe ratio was also
employed as a measurement of performance. A comparative study is employed to analyse the risks and
returns between listed property firms that are BEE compliant and BEE non-compliant.
Findings –Results show that there exists differences in returns and risk between BEE-compliant
firms and non-BEE-compliant firms. The study shows that BEE-compliant firms have higher returns
than non-BEE firms and are less risky than non-BEE firms. By establishing this relationship,
this possibly affects the investor’s decision to invest in BEE firms rather than non-BBBEE firms.
This study can also assist the government in strategically adjusting the policy.
Research limitations/implications –This study employs a CAPM which is a single-factor model.
Further study could employ a multi-factor model.
Practical implications –The results of this investigation, with the effects of BEE on returns, using
annualized returns, the Sharpe ratio and alpha (outperformance), results show that BEE firms perform
better than non-BEE firms. These results pose several implications for investors particularly when
structuring their portfolios, further study would need to examine the role of BEE on stock returns in
line with other factors that affect stock returns. The results in this study have several implications for
government agencies, there may be the need to monitor the effect of the BEE policies on firm returns
and re-calibrate policies accordingly.
Originality/value –This study investigates the performance of listed property firms on the JSE which
are BEE compliant. This is the first study to investigate listed property firms which are BEE compliant.
Keywords South Africa, African real estate markets, Broad-Based Black Economic Empowerment,
Emerging real estate markets, International real estate markets, Real estate listed stocks
Paper type Research paper
Journal of Property Investment &
Finance
Vol. 34 No. 1, 2016
pp. 3-26
©Emerald Group Publis hing Limited
1463-578X
DOI 10.1108/JPIF-09-2014-0061
Received 15 September 2014
Revised 28 September 2015
Accepted 30 September 2015
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1463-578X.htm
The authors are indebted to Pareto Limited South Africa who provided with a research grant to
complete this study. The authors acknowledge the comments of participants at the 2014
European Real Estate Society Conference and African Real Estate Society Conference. Finally
the authors thank the two anonymous referees who gave insightful comments and improved the
paper significantly.
3
Property firms
in South
Africa
Introduction
After the 1994 elections in South Africa that resulted in the end of the apartheid regime,
the majority citizens possessed only the ruling and not the economic power (Strydom et al.,
2009). To bring about equality and development among the previously disadvantaged,
the government established the Black Economic Empowerment (BEE) policy (Strydom
et al., 2009) which was later changed to Broad-Based Black Economic Empowerment
(BBBEE)[1]. The process began with the Broad-Based Black Economic Empowerment Act
in 2003, the Codes of Good Practice in 2007 and more recently an amendment Bill and
Amended Codes of Practice in 2013 (The Department of Trade and Industry (DTI, 2013)).
Charters for the different sectors were introduced, as it came into effect at different times
over a period of three years from 2009 to 2012 (DTI, 2013). These meant that each sector
would abide by the generic codes of conduct as well as the rules specific to that sector.
As a result of this, firms on the Johannesburg Stock Exchange (JSE), including those in
thepropertysectorhavehadto“undertake major corporate restructuring in order to
facilitatethe transfer of sizable ownership proportions fromexisting shareholdersto new
black shareholders”(DTI, 2013). The firms were able to score a certain rating depending
on how well the different aspects have been adapted to the BEE policies, which are black
ownership, management control, employment equity, skills development, preferential
procurement, enterprise development and socio-economic development, were implemented
in their organizations (DTI, 2013).
To encourage more BEE participation among the firms and to support black
ownership, the government has been awarding tenders and certain rights to these firms
that are implementing BEE (Ferreira and de Villiers, 2011). Better BEE implementation has
been considered as being socially responsible. The property sector has also been affected
by the BEE policy and firms in this sector have had to make the necessary changes
accordingly. Apart from the general codes of practice, there is also the property sector
charter which came into effect in June 2012. This has unique considerations to be made by
property firms in terms of economic development involvement and investments (DTI,
2013). The property sector is therefore required, beyond all the BEE policy requirements, to
invest in underdeveloped areas. The BEE policy may have an impact on the performance
of listed property firms, authors such as Ferreira and de Villiers (2011) investigate the
impact of the BEE policy on general stocks listed on the JSE. The policy was found to have
a negative effect on share returns in the short-run as period investigated was from 2005 to
2008. Authors such as (Hamzah et al., 2010), Sing et al. (2002), Morawski et al. (2008) and
Pavlov et al. (2015) have argued that the property stocks and general stocks are directly
proportional. Others like Abdul-Rasheed et al. (2008) claim, however, that there is no
relationship between the listed real estate firms’stocks and general stocks. Therefore,
considering these two opposite views, there is a possibility that the impact of the BEE
policy on the risks and returns of listed real estate may be different to that of the general
stock which has been researched in earlier studies. This is why the performance of BEE
and non-BEE compliant property listed firms is investigated in this study.
The fact that the level of BEE implementation is continuously increasing even in listed
property firms makes the policy one of great importance. For instance, several property
companies are BEE compliant such as Growth point properties and Attacq limited. Table I
shows the top 10 BEE compliant property listed firms in the JSE based on market
capitalization as at December 2012[2]. BEE compliant property listed firms include the
largest capitalized property firm on the JSE- Growth-point Properties with a market
capitalization of R43.3 billion and smaller capitalized property firms such as Vunani
Property fund with a market capitalization of R1.2 billion.
4
JPIF
34,1
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