Listed Residential Property Funds: the next phase for the JSE?

by David de Waal on October 31, 2014 0 comments

The listed property funds on the JSE now have a combined market capitalisation of over R400 billion – but only a tiny percentage of the value comprises residential properties.

Investment bank Stanllib’s research from a year ago indicated that in developed markets listed residential property exposure is 11%, and in emerging markets it is 15%, whereas the SA exposure was a measly 1%.

Subsequent to the publication of Stanlib’s data, there has been more activity in listed residential property.  Arrowhead has purchased a number of residential properties and the recently-listed Freedom Property Fund is targeting lower to mid-sized housing in areas of high demand, such as near the coal mines and power station in Limpopo.

Listed residential property funds can either target capital growth (i.e. selling for a profit) or rental income, or some combination.  The funds can also have different approaches to acquiring properties: Freedom is going to develop its own properties, whereas Arrowhead will focus on buying existing properties.

The advantage of a listed residential property fund would be that private investors can more easily invest in the property market. Investment amounts can be lower and it is easier to buy or sell listed shares or linked-units than it is to trade physical bricks-and-mortar properties.

Residential property funds will typically buy a whole development comprising multiple units, rather than individual properties although Pam Golding had proposed just such a fund in 2010.

CEO of Freedom, Tyrone Govender, is quoted as believing that residential property developments held for leasing will be ” an increasingly hotly contested sector and gain critical mass.”

Time will tell whether residential property funds can claim their share of SA’s booming listed property sector.

David de Waal (CA(SA))
CEO
Steeple – Low cost estate agents

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