Pam Golding Properties (PGP), boutique financial services company Stone Edge Capital and property management group JHI have recently created a joint venture with the aim to establish the first housing fund of its kind in South Africa. The fund, which will be structured as an unlisted variable loan stock company and known as Stone Edge Property Fund, is likely to be up and running within the next three months.
Although South African investors have long had access to the commercial property market through both listed and unlisted property unit trusts and property loan stocks, this will be one of the first residential property vehicles to feature on the South African investment radar.
Stone Edge Capital MD Marius Mostert says the slump in house prices over the past two years coupled to tighter credit lending policies by the banks have created the perfect opportunity to establish a residential property fund at the bottom of the housing cycle.
Mostert notes the lack of liquidity, particularly among residential developers, means that quality residential stock can now be bought at a discount to historical market values. “That creates potential for strong capital growth over the next five years on the back of a housing recovery.”
The idea is to acquire multiple upmarket apartments, clusters and freestanding homes that are typically priced from R2,5 million upwards in suburbs that offer above average capital growth. PGP is currently in the process of identifying 10 key suburbs in Cape Town, Johannesburg, Pretoria, Durban and Knysna. Says Mostert: "The objective is to build up a portfolio of medium to high value properties in carefully selected locations, which have a history of high capital growth and high sales turnover."
The fund will target high net worth individuals (HNWIs) and private bank clients who are looking to invest R500k or more with a five to seven year horizon. Although PGP will rent out and manage the properties, the fund is purely a capital growth play. No income will therefore be paid out during the investment period.
Capital proceeds will be paid to investors once the properties are sold and the fund wound up. Mostert says they aim to provide investors with an after tax internal rate of return (IRR) of 16% to 18% per annum. – Joan Muller
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