Sharing market insights and showcasing Barlow Park

Against the backdrop of an acute need for housing delivery in South Africa, Divercity Urban Property Group is proud to have played a leading role in the founding of the South African Multifamily Residential Rental Association (SAMRRA) and to co-sponsor its first research white paper, which demonstrates the immense value that well-developed, well-managed residential portfolios may offer investors.
 

The research findings were presented at our very own Barlow Park for the Johannesburg leg of SAMRRA’s national roadshow, which also visited Cape Town. The event attracted significant attendance from the asset management, banking, and investment communities, a clear indication of their keen interest in this type of investment. Attendees also got to experience the quality and vibrancy of Barlow Park first-hand.
 

Why credible, comparable sector research is so important
 

Quantitative analysis provides data needed to attract capital for the multifamily residential property sector, which is still quite new in South Africa and has great growth potential. The sector’s ability to attract capital is fundamental for much-needed housing delivery.
 

The research was co-commissioned by SAMRRA, which officially launched earlier this year to represent the agile and growing specialist multifamily residential rental real estate asset class.
Divercity is pleased to have helped set the industry’s course on this important journey and co-sponsor SAMRRA’s first research paper, together with co-sponsor ABSA.
 

MSCI conducted the research to adhere to global standards, ensuring the results are directly comparable and benchmarked with those of the other 33 markets it researches. MSCI has been measuring residential property returns as part of the MSCI South Africa Annual Property index since 2018. With five years of data, it is possible to start comparing the performance of South African residential assets to other asset classes.
 

This groundbreaking research marks a significant stride in expanding the pool of robust, relevant, and reliable data about the multifamily residential sector. It’s a unique opportunity to gain insights into residential property investment and fundamental performance, both in South Africa and globally.
 

So, what is “multi-family residential”, and why is this well-invested, major asset class growing globally?
 

Multifamily residential properties are housing units built-to-rent (BTR), not for sale. These commonly include apartment buildings and multiple housing units within a single complex or estate. Often, institutional investors own these large-scale rental properties and have them managed by professional and specialist residential property operators.
 

From a global perspective, the research shows that residential real estate is the largest asset class in the world, making up roughly 40% of all fixed capital. Investable commercial real estate accounts for only 7% by comparison. Although households own most residential property directly, institutional investors have started investing heavily in the Multifamily Residential asset class in recent decades. In the US REIT (real estate investment trust) sector, for instance, multifamily residential grew from 9% by asset value in 1990 to over 26% in 2020.
 

In 2022, residential assets accounted for 21% of global property investment by value — equal in size to industrial property and second only to offices at 35%. Residential property has also outperformed all other sectors except industrial property, but has a lower risk profile than industrial property, enhancing its attractiveness to certain investors.
 

A key factor behind the residential sector’s superior risk-to-return profile compared to the other property types is its relatively stable income, which makes it less reliant on market timing. Globally, residential property was the only sector that managed to maintain its net operating income.
 

In short, consistent performance in the global property market has made multifamily residential real estate a well-invested, major asset class globally.
 

Key research findings about the South African market:
 

• In South Africa, the multifamily residential asset class is still in its infancy, accounting for less than 2% of the REIT sector by asset value today.
• South Africa’s residential property market has been relatively strong. Its five-year annualised total return is 70bps below the global residential average, and the country’s relatively higher income return offsets negative capital growth.
• Local residential property fundamentals reacted faster than other property sectors post-pandemic, outperforming other sectors in 2022, similar to the trend observed across other global markets.
• Higher-quality residential properties in South Africa produced higher and more stable returns than lower-quality properties, adding to its attractiveness for institutional investors.
• This research contributes significantly towards the understanding and shaping of the multifamily residential sector in South Africa.

 

The research clearly shows that multifamily residential rental property is set to become a mainstay of the South African intuitional investment landscape, driven by the consistent performance of this real estate asset class, its low volatility, and its foreseeable returns.