Absa Commercial Property Finance and MSCI have partnered to launch Residential Results, an investor guide providing objective empirical data on returns achievable for direct investments in the residential property sector in South Africa.
These results are derived from data that was sourced from a portfolio of properties owned by 12 contributors who contributed towards a portfolio with an aggregate value of at least R17bn as of December 2017.
Plotting the risk-return profile of the residential sector
“Absa Commercial Property Finance is proud to be associated with the MSCI’s South African Residential Results. The results provide an analysis of the South African residential market relative to other global residential markets and will, after a number of data-points have been developed, enable investors to plot the risk-return profile of the residential sector relative to other property types in South Africa. The results will also provide a view of total returns (capital growth and income return) and rental value growth by sub-segments within the sector,” says Klaus-Dieter Kaempfer, Absa head of commercial property finance and equity.
Growing value to investors
According to Amelia Dieperink, Absa’s head of affordable housing (CPF), “Residential real estate is an established investment type within the real estate universe in many countries. The latest results from MSCI, covering over R17bn of value, will constitute almost 5% of the MSCI South Africa Annual Index, and provides a clear demonstration of the sector’s growing value to investors. The development of a South African residential sector total return enables a consistent comparison across markets. Much in line with the other sectors, SA's residential sector has held its own, coming in slightly lower than The Netherlands and Germany but well ahead of 10 other countries included in MSCI’s coverage.”
Phil Barttram, executive director at MSCI, indicates that “the South African Residential sector’s total return (ungeared, standing investments in local currency) in 2017 was 12.3%. This comprised 3% capital value growth and 9% income return, which matches the total return of the industrial and retail sectors and outstripped the 10.3% of offices for the year. Furthermore, net operating income yields of 8.2% were significantly higher than the other markets measured by MSCI.”
“The sector has been decomposed into two sub-sectors, affordable housing and other, with student housing currently included in other due to MSCI’s confidentiality protocols. Key findings include the strong income returns of 9% on the back of moderate capital growth. Considering the sector’s fairly recent evolution, it’s interesting to note a cost-to-income ratio (gross costs as a % of gross income) of 40% is akin with that of the industrial sector,” adds Barttram.
Klaus-Dieter Kaempfer, Absa head of commercial property finance and equity
Residential sector previously overlooked
Kaempfer says that while investors in South Africa have for a long time made capital allocation decisions in direct property investments in industrial, office and retail property sectors, the residential sector has, on the other hand, been generally overlooked. He adds that there has, however, been a change in recent years, with a number of investors entering this specific sector.
“Given the significant interest in the residential sector by various market participants, it is an opportune time for a data set to be developed that can enable investors to make objective judgments about the performance of this sector, as well as the performance of their portfolios relative to the market,” says Kaempfer.
According to Dieperink, Absa Commercial Property Finance intends to make the residential results an annual publication which will guide investors in the South African residential market.
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