buy-to-let residential property want their investments neat and tidy, not diluted by paper holdings in a listed residential fund.
It is estimated that they spend R5bn/year on bricks and mortar (and another R60bn on owner-occupied homes).
Yet it has taken property asset manager Catalyst two years to build property loan stock company Habitat to a value of only R400m. Catalyst wants to list Habitat on the JSE this year.
Many investors are not persuaded, despite Habitat's inviting 12% initial yield. Individually owned flats in Cape Town and Johannesburg's prime suburbs are yielding between 8% and 9,5%.
Yields on blocks are not much more. This compares with current prime office yields of around 12,5%.
Residential property is considered a lower-risk investment than commercial property in the US and Europe. It makes up more than 24% of real estate investment trusts listed in America and about 17% of institutional property investment in Europe.
Habitat aims at giving institutional property investors the opportunity to diversify into residential.
Normally, swapping their properties for Habitat paper would do this. Instead, they converted their residential holdings into sectional title units and sold them in the 1970s and 1980s to escape rent control.
They have little left beyond the odd block of flats on top of a retail centre. Neville Schaefer, CEO of national residential managers Trafalgar, says Habitat will have difficulty persuading private owners of blocks of flats to sell and the few that do to take paper instead of cash.
"Residential is usually the starting point for property investors," he says. " Owners tend to take a simpler view of investment than commercial property owners.
They have owned their blocks of flats for years and will stick to what they understand. This does not usually include listed funds. If they sell, it's for cash."
Schaefer has sold two suburban buildings in his portfolio to Habitat but has kept his Johannesburg inner-city portfolio and some prime Durban properties.
Catalyst's Harry Boonzaaier says he cannot release details of the Habitat portfolio yet because not all the purchases are finalised.
He says yields on inner city properties are 18% (22% of the portfolio) and 12% on the suburban properties (44%), which is encouraging. Boonzaaier insists the portfolio will soon grow to a market cap of R1bn.
He says he has enough vendors negotiating with him to achieve this.