Why residential property is missing from South Africa’s institutional investment portfolios

While South Africa has a R6 trillion residential property market, less than 2% of the R150 billion institutional property capital pool is allocated to that.

Institutional portfolios absence

Residential is the largest asset class in the country by value yet effectively absent from institutional portfolios, says Murray Clark, the Co-founder and the CEO of Neighbourgood.

He says he would argue that homes are the single most important places in the world for any family and that as an asset class they would have perked up a little more interest in SA. “But alas SA is always earlier in the curve.

By contrast the US has a $3.5 trillion multi family market making up 15-20% of their capital allocation and the UK $1.5 to $2 making up 5-10%.”

Neighbourgood breakdown of allocation in SA:

• Retail: ~R50-75bn.

•Office: ~R30-50bn 

• Industrial/logistics: ~R20-40bn

•Residential: ~R2-3bn

The property development and management company says this problem for SA is really structural. 

• REITs in SA were built on retail and office (Safer bets in principle. I get you).

• Residential is operationally intensive (In my mind this is also an opportunity).

• Stock is fragmented and hard to aggregate (At least at the moment). 

• The sector hasn’t been “financialised” vet (That will change soon).

Next wave of real estate 

“But that’s exactly where the opportunity lies. My bet is that the next wave of real estate here won’t be another mall or office fund. It will be the institutionalisation of rental housing and or hybrid quality mixed use resi that compliments the core. We are excited to play our part in making that happen,” Clark says. 

Earlier this month, the National Housing Finance Corporation(NHFC) and Housing Company Tshwane have officially signed an MoU to strengthen collaboration and accelerate housing delivery in the City of Tshwane. 

This partnership is said to focus on funding opportunities, diverse housing typologies, and shared expertise to drive meaningful impact on the ground.

“This marks a significant milestone between the two government entities, and should encourage us to all move with speed, as we ensure that this MoU translates into delivery on the ground” said Jabulani Fakazi, the NHFC CEO.

Unlocking new finance

Welcoming the signing of the MoU, the MMC for Human Settlements, Ald. Aaron Maluleka said this partnership represents a significant step forward in unlocking new finance, broadening housing typologies and accelerating the delivery of dignified, affordable homes for residents across their city, taking into consideration the City’s Fiscal constraints.

“When combining municipal land and planning capacity with NHFC financing and the Housing Company’s delivery expertise, we can expand housing choices and create integrated neighbourhoods that connect people to jobs, schools and services.” 

The affordable housing market in SA is not just a segment of the South African residential market-it is the market, said the RB Property Group recently. 

Representing 70% of the residential sector, it said affordable housing holds the largest share and serves as the driving force of the local property landscape. 

However, the property group said affordable housing is far from being an easy market to navigate. “This sector is predominantly made up of first-time homebuyers, many of whom face significant financial barriers such as low credit scores and limited access to home financing. These challenges demand more than just a housing solution; they require dedicated financial education and empowerment,” said Rob Buthelezi, chairman at the company.