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Industry Overview

Industry Trends and Research

A formalized dedicated residential property fund industry is relatively new in Africa and most developed in South Africa. Historically, the property fund industry has been dominated by the commercial and retail funds (this industry is now mature and increasingly consolidated). [The listed market cap of the property sector on the JSE (South Africa) exceeds R500bn.] Our view is that increasingly we will see listed dedicated residential property funds.

The property market in South Africa is valued at R5trillion (R5tn). The Residential sector is R3tn (60%). The remainder R2tn is broken down as follows: Commercial (R800bn), State (R600bn), and Land (R800bn). From these figures it is clear the commercial and retail sectors are consolidated, listed and mature.

The South African residential property rental market currently has limited consolidation and formalization. There are very large investment vehicles in developed countries which focus on the residential rental market (Germany and the United States). Currently, the only large, visible dedicated South African Residential Property Funds are the HIFSA / FSC funds of Old Mutual Alternative Investments, IHS (International Housing Solutions), Pulse (previously Real People Property), and the Octodec / Premium (Wapnick family) held within the listed entity. Our view is that, outside of the above, there are approximately 50 privately held residential portfolios across the country in excess of R100m, of which 5 are over R500m.

In developed markets (such as the United States) some 15% of the listed property assets are residential. In South Africa, currently, less than 1% of listed property assets are residential.

In South Africa there is added pressure on residential property as the black majority was historically excluded from property ownership, a middle class continues to emerge, and urbanization remains rapid. The state has delivered 3 million homes in 20 years, globally unmatched. However, a significant backlog remains. The history of the country means that in many communities knowledge is only now spreading with regard title and property rights. In these communities there remains limited property infrastructure (estate and rental agents, managing agents). To remedy the housing backlog the state will need to continue to intervene. Portfolio (pension) fund allocations will need to occur, subsidization of transaction costs will need to occur, and skills development will need to occur.

For the reasons outlined above we believe the dedicated residential property fund sector will continue to evolve in South Africa. We believe increasingly residential property will be seen as a separate asset class (segregated and distinguished from retail and commercial). The high road outcome is an evolving and growing industry where there is a blend of dedicated listed funds, unlisted institutional portfolio funds, loan stock companies, and privately held portfolios.