The fund, Habitat Property Investments, will have an initial portfolio worth around R400 million and will look to grow that rapidly to R1 billion, says Harry Boonzaaier, director of Catalyst Property Asset Managers, the fund managers.

 
“Habitat plugs a gap in South Africa’s property investment sector”, says Boonzaaier, who joined Catalyst last year after being rated as the country’s top property research analyst in 2001.

“Residential property currently plays no part in the South African listed property sector. In contrast, it makes up 26% of all listed property in the United States and 10% in Europe. The largest listed residential fund in the United States is worth more than $7 billion.”

Boonzaaier says Habitat is investing in existing and new residential properties, including medium and high density flats, houses and townhouses, and some student accommodation, to secure a growing rental income stream and capital growth. The initial portfolio is spread across Gauteng, the Western Cape and KwaZulu/Natal.

“Habitat will be listed on the back of strong performance by the property sector on the JSE. Listed property has outperformed all other classes of investments over one, three and five years, “says Boonzaaier. “The average annual total returns over the past five years of property unit trusts and property loan stock companies have been 16,2 % and 18,2% respectively. “

He says Habitat will be structured as a property loan stock company with a yield of 12% and a projected total annual return of more than 20%.

”Habitat aims to address the needs of institutional and private investors. It can enhance institutional funds whose managers wish to diversify their property portfolios and bring them in line with international investment norms. It also offers the private investor a low cost, low risk, liquid and managed entry into the residential investment market at a yield he or she is unlikely to achieve through a direct investment in a second property.”

“Residential property does not follow the same economic cycle as commercial property. We expect residential rental growth to outpace commercial growth by a wide margin over the next couple of years.”

Boonzaaier says Habitat will have a lower risk profile than commercial property.

“Its rental income is derived from a larger spread of individual tenants and the individual properties are far more liquid.”

“Risk is also reduced by a shortage of residential properties, increased demand for rental units fuelled by strong growth in house values, continuing urban migration, and mobility of skilled workers.”