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Nov 26, 2007:
Property funds listed on the JSE could start adding residential stock to their portfolios, as commercial property investment opportunities start to dry up.
That is one of the sentiments raised at the IPD/Sapoa Property Investment Conference held in Cape Town last week.
The general view is that if the R105bn listed property sector wants to grow further it will have to start including non-traditional asset classes such as housing to its existing offering of offices, retail and industrial buildings.
SA listed funds - unlike their counterparts in the US, UK and Australia - have traditionally shied away from residential property, as the sector was widely regarded as a high-risk/low-return one.
Andrew Schaefer, managing director of residential letting agents Trafalgar, concedes that residential property is generally more cost and time-intensive to manage than commercial property.
But Schaefer believes that the sector could become increasingly attractive to listed funds as affordability issues continue to force more South Africans to rent instead of buy, a trend that will significantly boost residential property returns over the next few years. Schaefer says South Africa's inner cities already offer yield-enhancing opportunities to listed funds that have the capacity to buy large portfolios of rental housing stock.
Schaefer says listed funds have the skills base, technical expertise and access to funding to become major players in the residential property market.
"Given the huge demand for affordable accommodation in South Africa, residential property offers listed funds the ideal opportunity to diversify their core commercial portfolios.'
Some listed funds have already started to add residential stock to their commercial property assets. They include the likes of Premium Properties, Octodec Investments, ApexHi Properties, Redefine Income Fund and Acucap Properties.
Earlier this month, Premium Properties, who owns a large portfolio of office-to-flat conversions in the inner cities of Pretoria and Johannesburg, announced a massive housing project in Hatfield near the University of Pretoria. The R280m project, The Fields, is set to create one of the largest precincts of residential units in South Africa. The first phase of the mixed-use development will consist of around 700 residential units and 4,000 sq m of retail space, aimed primarily at students and people working in the area.
Premium Properties will redevelop seven existing buildings in the street block bounded by Hilda Street to the east, Burnett Street to the south, Festival Street to the west and the railway line to the north to create the precinct. - Joan Muller
