Real Estate Investor Magazine South Africa April 2016 | Page 28

LETTING

Residential

Buy-To-Let
The Big Boys are getting in on the action
BY GERT VAN STADEN

I

n South Africa, with its rapidly growing middle
class, strong urbanisation trend and a staggering
housing backlog, the opportunities for residential
buy-to-let investors are phenomenal. The Finance
and Fiscal Commission (FFC) estimates that it will
require R800 billion - and a “miracle” - to clear the
housing backlog of 2.1 million houses. The imbalance
between the growing demand for housing and the fast
dwindling supply, which has all but grinded to a halt
thanks to the banks’ stringent lending criteria and the
enormous challenges faced by residential property
investors, has ensured that rentals have increased
steadily and rental stock shortages are evident across
the country.

For example, JSE-listed SA Corporate Real
Estate Fund has bought the Afhco Group and its
property portfolio, which includes 27 properties in
Johannesburg’s inner city, valued at around R953
million. Visual International, which listed on the JSE
recently, plans to invest R33 million in residential
property development projects over the next two
years. The newly listed Freedom Property Fund,
with a R1.5 billion portfolio, has undertaken two
residential developments largely in Limpopo and
Tshwane, targeting the low- to mid-market segments.
The JSE-listed Arrowhead Properties has invested
more than R1 billion on residential stock and plans to
list the first purely residential-focused REIT.

Listed property

Benefits of direct investment

While listed property companies have mainly
focussed on commercial property, and particularly
retail property, it seems that the big boys of the
property industry are now also turning their attention
to the vast potential in the residential sector.
Around 14% of residential property is listed
in developed markets and 15% of developing
markets’ residential properties are listed. Global
REIT markets, particularly the US and UK, have
experienced numerous residential listings recently,
focussed on burgeoning cities like London and Berlin.
In comparison, just 2% of investment-grade
residential property in South Africa is listed.
Currently, there are only two companies on the
JSE with residential property exposure - Octodec
Investments and Premium Properties. However,
this is changing as interest in the residential sector
is gaining momentum among South Africa’s listed
REITs.
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APRIL 2016 SA Real Estate Investor

While investing in a listed company with residential
property exposure is an option for investors, the P3
Investment Group believes that a direct investment
in residential buy-to-let property remains the better
option. Direct buy-to-let property investments are
not exposed to the vagaries of the stock markets as
listed investments are. And perhaps most importantly,
the returns on a direct investment in residential buyto-let property is not decimated by fees and it is not
shared with anyone – the rental income and the
capital growth over time belong to the investor, and
only to the investor, who also remains in full control
of the investment at all times.

RESOURCES
P3 Investment Group
www.reimag.co.za