Habitat puts faith in home rental market

Posted On Thursday, 25 September 2003 02:00 Published by eProp Commercial Property News
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Pundits say commercial property sector is getting stronger, more sustainable and less risky

Brian AzizollahoffResidential property rentals can be expected to deliver better investment returns than listed commercial property over the next five years, says Harry Boonzaaier, a director of Catalyst Property Asset Managers.

Boonzaaier says research by Catalyst, which aims to soon list SA's first residential property income fund, Habitat Property Investments, shows that houses have outperformed other asset classes.

Although Catalyst believes this bodes well for the new listing, other pundits say house prices and rentals perform differently and that rising house prices do not necessarily mean the listing will do well.

Boonzaaier says a report by Investec Securities covering the 1981 to 2002 period shows an 18,5% total return on houses.

"This compares with returns of 16,2% for bourse-listed equities, and 14% for bonds and cash over the same period.

The Investec report also shows that even over a shorter period, from 1994 to 2002, houses delivered the best return. This was 18,2%, ahead of equities at 13,1%, bonds at 15,9%, cash at 13% and property loan stock companies at 14,9%.

Boonzaaier says Absa, which is expecting average house price growth of 18% in nominal terms this year, is forecasting residential rental growth of 7,5% to 10,5% over the next 15 years.

He says rapid urbanisation, continued growth in real disposable incomes and an expectation of a decrease in average number of inhabitants a household are also influencing growth and that all these factors reduce the risk profile of a property fund such as Habitat.

However, Mariette Warner, who is head of fund management and securitisation at Standard Bank Properties, and manager of the Standard Bank Property Income Fund, says 22% of Habitat's portfolio are flats in Hillbrow.

"House prices and the rental accommodation perform very differently. If the portfolio can realise capital value, it should do fine. However, they are largely dependent on rental accommodation in a falling interest rate environment," Warner says.

A falling interest rate environment is not good for rentals because people can afford to buy properties, she says.

Brian Azizollahoff, CE of property loan stock company Redefine Income Fund, says that while he agrees that house prices will continue to increase, he does not believe it would have any effect on a residential listing.

Azizollahoff says the principle of a listed residential focused fund is a good one, but it may be before its time in SA.

He says this is Habitat's core challenge. "I think it will remain a small-cap company with low liquidity. I'm not sure its going to be of great interest to investors.

"The fact of the matter is that residential rentals are more sensitive to economic influences because at the end of the day your tenants pay out of their own pockets, whereas in the commercial sphere companies can far easier support increases in rentals and the like."

He says intensive management is needed for residential properties than for commercial, retail and industrial properties.

Azizollahoff says one is far less exposed to rental risk in the commercial area than in the residential area.



Last modified on Friday, 09 May 2014 21:16

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