Local Institutions show no hearth for homes

Posted On Thursday, 18 November 2004 02:00 Published by eProp Commercial Property News
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They prefer to play it safe with the commercial funds they know

Anton BothaCape-based promoter Catalyst has abandoned its two-year effort to launch a R400m listed residential property fund called Habitat.

Project head Anton Botha says there was a "lack of comfort" among institutional buyers and Catalyst found itself short of equity. 

Put another way, local insurers and pension funds don't seem to understand residential property.

And though the institutions were offered inviting initial yields of 12% on Habitat - prime flat units are selling at yields of 7% or less - they prefer to stick to the commercial funds they know. 

Residential property plays a large role in investment trust portfolios in Europe and the US.

It is perceived as lower risk and its investment yields are lower than commercial property's. 

But the exercise has been no loss for Catalyst.

It has been able to resell properties at a big profit. 

Catalyst MD Royden du Plooy says net asset value would have grown by about 30% during 2004, giving investors a 42% total return and outperforming all other asset classes. 

Catalyst built a portfolio of about 2 500 units before abandoning Habitat. About 1 500 units were bought subject to Habitat succeeding. Botha says they have been returned to the vendors. 

Catalyst has sold 130 of the remaining 1 000 units it owns outright at, says Botha, a "substantial" profit. 

For instance, last year it bought 96-unit Illovo Mews in Johannesburg from a private syndicate for R12,5m on a yield of around 15%.

Botha will not say how much he sold it for to Cape developer Adam Marcus.  But Marcus hired Johannesburg agents Limestone to sectionalise and resell the individual 42 m² units to investors.

Limestone's Jarod Kolman says he has sold 60 of the 96 units at between R359 000 and R379 900, placing a total value of about R30m on the property. Assuming an even split in the gross profit between Catalyst and Marcus, each would make around R8,5m. 

Kolman says that some of units being sold have tenants who are paying rentals of between R2 500 and R3 000/month. Levies will be about R550/month, so investors will be getting an initial yield of 7% - nearly half of what institutional investors were offered by Catalyst. 

Botha says there was no shortage of investment stock available, indicating that a residential fund may still be possible in the future.

"We were amazed at the number of investors with large residential holdings," he says.



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