SA residential sector upbeat

The South African residential property sector delivered a total return of 12.3% last year, comprising 3% capital growth and a 9% income return.

This is according to the inaugural results publication from Absa Commercial Property Finance and MSCI, and puts South Africa in third position behind Germany and the Netherlands in terms of total return.

The South African returns are ungeared investments in local currency and are based on a sample of 12 property portfolios holding residential assets with a total value of R17.8 billion.

It includes 368 properties and almost 45 000 units – predominantly in the affordable housing market – and covers private as well as listed funds.

Although residential property is an internationally accepted asset class, local institutional investors shied away from it until about five years ago when institutional investors got on board and began to invest in the sector.

Phil Barttram, executive director at MSCI, says the return is “not too shabby” given local market conditions and the fact that it is a fairly new sector.

“The market sees the asset class as slightly more risky, as reflected by the requirement for higher income return and net operating income yields, but not substantially more risky than the other asset classes,” he says.

The return is in line with the performance of local industrial and retail sectors, and outstripped the 10.3% total return for the office segment in 2017.

While there are wide-ranging views around the definition of affordable housing, the MSCI analysis only considers the asset and not the circumstances of the tenant.

Against this background, affordable housing broadly incorporates rental values of up to R8 000 a month and capital values of up to R800 000 per unit.

The net operating income yield (rentals less costs to run the building as a percentage of capital deployed) for the residential sector was 8.2% in 2017, compared to 4.7% for Japan, 4.2% for the US and a global average of 3.8%.

Barttram says the relatively higher income yield may be a reflection of a perception of risk.

Looking broadly at the total returns across commercial sectors – which includes the residential sector in other countries – Spain was the top performing country across MSCI’s analysis in 2017 at 14.5%, compared to SA’s 11.7%.

Moneyweb

Derek Cohen, the receiver of the Orthotouch investment scheme, has resigned, citing among other reasons a “potential risk” to himself and his family due to campaigns waged by “certain investor” groups.

This step may have far-reaching implications for the 18 000 Orthotouch investors and will blur the current uncertain situation related to interest payments to investors and the various legal challenges against property magnate Nic Georgiou and Orthotouch even further.

“It appears that there is a potential risk to my family and myself