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Multifamily residential rentals gain traction among South African institutional investors: report

Staff Writer
Estimated reading time: 2 minutes

Multifamily residential rental property is set to become a significant fixture in South Africa’s institutional investment space.

This is supported by the consistent performance of this real estate asset class, as revealed in the inaugural research focused on residential property investment, both domestically and globally.

Commissioned by the South African Multifamily Residential Rental Association (SAMRRA), a newly established industry body, in collaboration with research sponsors Absa and Divercity Urban Property Group, the study was conducted by MSCI to ensure adherence to global standards.

The research provides crucial data needed to translate burgeoning interest into capital for the multifamily residential property sector, which is still nascent in South Africa but holds significant growth potential.

Multifamily residential properties, characterised by units built specifically for rental purposes rather than sale, encompass apartment buildings and multiple housing units within a single complex or estate.

Typically, these large-scale rental properties are owned by institutional investors and managed by specialised residential property operators.

Eileen Andrew, VP of Client Coverage and Real Estate at MSCI, noted that MSCI has been tracking residential property returns through the MSCI South Africa Annual Property Index since 2018.

With five years of data, comparisons of South African residential assets’ performance with other asset classes are now feasible.

Globally, residential real estate stands as the largest asset class, representing approximately 40% of all fixed capital, far surpassing investable commercial real estate, which accounts for just 7%.

Notably, institutional investors have increasingly allocated funds to the multifamily residential asset class over recent decades, evident in the growth of this sector within the US REIT sector from 9% in asset value in 1990 to over 26% in 2020.

The research attributes the robust growth of this globally well-invested asset class to its consistent performance in the global property market. In 2022, residential assets constituted 21% of global property investment by value, matching industrial property and trailing only offices at 35%.

Residential property has consistently outperformed all other sectors except industrial property, boasting a lower risk profile, which enhances its appeal to certain investors.

The SAMRRA research said that multifamily residential asset class in South Africa, currently represents less than 2% of the REIT sector by asset value.

Despite this, the local residential property market has demonstrated resilience, with a five-year annualised total return only marginally below the global residential average.

Notably, the country’s relatively higher income returns offsets negative capital growth.

The study highlights the faster reaction of South African residential property fundamentals compared to other property sectors post-pandemic, outperforming them in 2022, mirroring trends observed globally.

Higher-quality residential properties yield superior and more stable returns than lower-quality properties, further enhancing their appeal to institutional investors.

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