Most of the investment is flowing to Johannesburg's inner city and surrounds. Industry players say Jo'burg's huge supply of high-rise buildings offers plenty of potential to create large portfolios of rental stock - either through office-to-flat conversions or refurbishment of abandoned/dilapidated Hillbrow and Berea blocks of flats.
  
Specialist asset management group Futuregrowth recently approved a R50m funding facility to the Trust for Urban Housing Finance (TUHF) through one of its socially responsible investment (SRI) funds. TUHF provides finance for entrepreneurs to buy, refurbish and rent out residential buildings in the inner city.
 
Futuregrowth investment manager James Howard says that previously low-income housing was generally a loss-making business. So the sector wasn't an ideal place for risk-averse pension funds and institutional investors to be. But Howard says that's changed, with the industry creating a number of innovative products and structures through which affordable housing can now be financed profitably.
 
He dismisses any suggestion that lending at that end of the housing market could be compared to the sub-prime sector in the United States, where reckless lending has resulted in a large number of mortgage repayment defaults. Howard says SA's mortgage lending model is very different to that, as SA banks and other financiers continue to impose stringent lending criteria to low-income earners or those with dubious credit histories. For investors, the cash-flow risk previously associated with low-income housing has also been reduced significantly through stricter access control (usually fingerprint driven) in buildings and rent collection policies.
 
Listed property fund ApexHi reports similar demand for inner city rental accommodation. The fund recently entered the housing market through a joint venture with Aengus Property Holdings. Two separate rental portfolios - consisting of 25 buildings in Braamfontein, Berea, Hillbrow and Parktown - were bought for R246m. The units, sized between 25sq m and 35sq m, fetch rents of between R2 500 and R3 000/month. ApexHi CEO Gerald Leissner says its residential portfolio is already proving to be a nice income growth driver. "If we had 10 000 more flats we would rent them out tomorrow."
Publisher: Finweek
Source: Finweek