Decent Accommodation Facilities For Many South African Remains A Challenge.
South Africa’s housing deficit was estimated at 1.5 million units in 1994. The South African government has since made it one of its objectives to uphold the constitutional right to adequate housing. Their intentions to do so have been coupled with meaningful effort and interventions to address and curb this exponential growth in the housing backlog.
Among these interventions was a total budget allocation of R 19.8 billion for human settlement and municipal infrastructure in 2017. This represented an increase of approximately 9% from the previous year’s budget.
A further R 3.2 billion was allocated to lower income housing projects. This was to promote affordable medium-density rental housing with 66 554 finance-linked subsidies for the affordable housing market. Moreover, R 600 million was set aside for the Social Housing Regulatory Authority for investment in rental housing units.
Research and critiques agree about the recent efforts and interventions by the government, that they still fall short. The pronouncement by former Minister Pravin Gorhan to prioritize high-density rental accommodation, is a shift away from the government’s policy to promote home ownership among the poor.
According to the South African Institute of Race Relations the housing backlog is measured to be at 2 million units. This exponential growth of the housing deficit is attributable to failure in understanding the housing demand which has consequently led to inappropriate government interventions and poorly planned settlements.
Furthermore, the subsidy is criticized for its failure to induce desirable levels of investment and participation by the private sector and households themselves. This is seen in the sluggish progress of self-build housing initiatives and the length of time taken by South African households to improve housing conditions relative to countries such as Brazil.
Against this backdrop the remainder of the article will address:
i) Investing in residential property as a medium for wealth creation,
ii) Unique investments in the township residential property market.
iii) Reasons to invest in Unlisted Real Estate Investment
Investing In Residential Property
Despite economic and political challenges faced, the South African property market continues to display resilience.
Although consumer sentiment is currently subdued, hampering the performance of this market with consequences of properties staying longer on the market relative to a 2016 average period of 11 weeks, 78 % of consumers included in the ABSA homeowner sentiment index expressed positive sentiment about property as an investment.
Carel Gronum who is an ABSA home loans executive affirms that investing in residential property is still a good vehicle for wealth creation. It is highly anticipated that a well-chosen property will appreciate in value over time, with location, supply and demand underpinning this price growth.
Gauteng remains the most affordable of the major metros with residential property around economic hubs and areas benefiting from infrastructure and investor development continuing to profit from demand and growth in property prices.
According to the head of Standard Bank home loans, Andrew van der Hoven, the incremental deterioration in affordability deters the middle-income buyers, who are the main drivers of demand in mortgages. And for this reason it is anticipated that rental inflation will outperform house prices growth. Higher income yields are forecast on residential property, and thus “buy-to-let” opportunities will be more valuable.
Investing in Township Residential Property
Research such as that of Spotong, McDonald and Arde has shown that the search for yield and saturation in metropolitan areas is forcing developers to divert their attention elsewhere for opportunities in the property market. Information barriers and the lack of understanding about this market have prevented and limited the realisation of the full value to be expropriated from it.
The First National Bank (FNB) house price index shows that township property prices are rising much faster than in the rest of South Africa’s residential market. Both infrastructure and investor developments including the building of malls and shopping centres have assisted in boosting this market. Houses that were previously worth R 300 000 have grown to approximately R 500 000 in value, with some of the largest increases having been witnessed between the period 2005 and 2008 with year on year increases of up to 40% in some areas.
The Shishaka Development Management Services share the same sentiment by highlighting potential for growth within the sector. Demand for stock is high and mostlandlords in both Inner Cities and Townships indicated that it is easy to find tenants (over 62%). Township landlords report that vacancy is effectively zero. However, this potential is currently not being realised.”
Judging from the above findings by scholars and market experts, Integrated townships are proving to present mutually beneficial opportunities for both buyers and developers as demand for residential, commercial and retail elements compliment and feed off each other.
SagaloPartners is currently blind pooling capital to develop residential rental properties in townships. All investors with a long-term view and an appetite for passive income are invited to be part of a crowd investing into the township economy through property development and acquisition.
To understand more about how to become a part of the crowd, RSVP NOW
Our Goal is reach 10 projects in 12 months
# LETS GO
The investment strategy to be employed is outlined below:
- Target yield of 15 -17 %
- Quality tenants with lease in place
- Acquire or develop, lease and dispose
- Holding period 5 -7 Years
- Maximum commitment R 120 000.00
- Minimum commitment R 65 000.00
- Vehicle: Company
- 12 members/entities per project
Reasons to invest in Unlisted Real Estate Investment
Investing in real estate has always been key to wealth creation, however investing in physical property has typically been capital intensive.
That being said, there are other options to invest in real estate such as buying a stock of a publicly listed company or investing in private equity property funds that are not publicly listed.
The benefits of investing in a property fund can be summarized as follows:
#1. Passive income
Investors enjoy the benefit of earning passive consistent income generated from property rental income. The property managers usually take care of rental collection and sourcing the best tenants for the building. Rental income should appreciate year-on-year by inflation plus a margin depending on demand and supply of property stock in the area.
#2. Capital appreciation
Property value usually appreciates over a period of time. As an investor into the crowd fund, you are also entitled to the income generated from selling the property after the holding period. Seasoned property investors usually have a holding period of between 6-10 years, however if economic conditions allow this can even be longer.
#3. High tangible value
Real estate investments are backed up by brick and mortar making it less volatile to economic shocks, unlike stocks and bonds. The underlying property is also insurable in case of any unfortunate event, therefore your capital is almost guaranteed.
#4. Inflation hedging
Landlords usually transfer inflationary pressures to the tenant, protecting your capital from being negatively affected by inflation.
Exposure in unlisted real estate can also offer diversification benefits. Unlisted property investment returns are positively uncorrelated to most asset classes such as stocks and bonds.
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