Growing the listed residential property pot
It ’s the f i rst focused residential property fund to be listed on the JSE. And investors, previously unsure about a focused residential l isting, are now exhibiting positive sentiment to the f loating of the fund. “The institutional shareholder base is very supportive of the move and response has been positive,” says Imraan Suleman, f i nancia l di r ector of Arrowhead Properties and executive director of Indluplace Properties.
Indluplace ( indlu is the Zulu word for house) is the separate residential property portfolio from parent group Arrowhead Properties, listing on 19 June. The private placement of 40m shares will raise approximately R400m at an indicative issue price of R10 per share. Arrowhead currently has around 15% exposure to the residential market through Indluplace of which it is a 70% shareholder.
It was courtesy of a REIT conference in Chicago that the residential sector and the listing of a separate residential fund appeared on Arrowhead’s radar. Today it brings about the listing of Indluplace Properties, a residential property fund with a portfolio of 95 properties and over 3 600 individual units valued at R1.6bn. It’s a portfolio that Suleman says they aim to double to R3bn a year from now.
“Indluplace is focused on owning and growing a substantial residential property portfolio f rom which it will pay growing distributions to its shareholders. Listed residential property comprises less than 2% of South Africa’s listed property market, compared to over 13% in developed economies. We believe there is opportunity for signif icant growth in this sector,” says Suleman.
Opportunity and focus for Indluplace is t he affordable housing market. The portfolio is made up primarily of affordable properties, mostly multi- our view, are a lot lower than commercial and in the affordable, entry-level of the market, demand outstrips supply. Vacancies across residential portfolios are less than 3%, and arrears and bad debts are generally a lot lower than commercial. The only big challenge is that residential is more management intensive than the commercial side,” says Suleman.
Eighty-two percent of the portfolio is located in Gauteng. Student properties only make up 10% of the portfolio, the bulk consisting of properties for individuals and families. Rentals range from R1 000 for a room up to around R6 500 for a three-bedroomed apartment with the average rental cost, excluding the student market, around R4 000 per unit.
Indluplace plans to grow its portfolio aggressively by staying within South Africa’s borders. If an acquisition opportunity meets its criteria and provided Indluplace has adequate property management in place, Suleman says it would be one the company would pursue. The group aims to position itself as an exit for developers or owners of residential stock or portfolios.
I nvest ment wi l l genera l l y be in l a r ger urban centres c l ose to work opportunities and transport infrastructure where there is a shortage of affordable housing and where good demand exists for affordable student accommodation.
Suleman believes the l isting of a separate residential fund will also benefit those investors who don’t want exposure to commercial assets. “The asset class should trade at a lower yield than commercial property but as investors get to know the asset class, we believe yield will follow,” says Suleman.
The yield is expected to trade at about 8%.