Are you looking to share in the spoils of SA’s buoyant residential buy-to-let market without the hassle and cost of owning an apartment outright?
If so, JSE-listed Purple Group’s online real estate platform, EasyProperties, is worth a second glance.
EasyProperties, a sister company to share trading platform EasyEquities, introduced a novel way for investors to make money from residential bricks and mortar last July.
The platform enables people to buy shares in one or more companies (special purpose vehicles), each of which owns a collection of rental apartments.
Essentially, it’s a fractional ownership model and investors subscribe for shares by way of an IPO — much like an investment in a listed company through an IPO prior to a company making its stock market debut. However, in the case of EasyProperties, the shares are unlisted.
Dividends are paid quarterly while capital growth is realised when investors sell their shares. Investors are encouraged to adopt a five-to seven-year investment horizon. "It’s not a short-term play," says Rupert Finnemore, CEO of EasyProperties, who previously headed Pam Golding Properties’ Gauteng region. More recently, he was head of business development at proptech start-up Leadhome.
That doesn’t mean you’re stuck in the investment, however.
Liquidity is provided by an online auction process where shares can be traded four times a year. Finnemore argues that a key attraction of the platform is that there’s no minimum or maximum investment required.
"So people who couldn’t afford to participate directly in the real estate market before can now do so, without having to apply for a mortgage and physically take ownership of an individual property," he says.
For example, amounts invested by individual investors to date vary from as little as R1 to as much as R1m. The average investment on EasyProperties is R1,700. Another perk is that investors aren’t involved in the tedious tasks of finding tenants and collecting rent, as EasyProperties has partnered with rental managers to handle all the day-to-day operational responsibilities.
The first collection of properties offered to investors when EasyProperties was launched in July comprised four studio units in BlackBrick, an office-to-residential conversion in Sandton. The four units were valued at a total of R5.2m. The BlackBrick offer was heavily oversubscribed and 4,200 investors applied for shares. In less than 10 months, Finnemore has bulked up EasyProperties’ portfolio to about 80 apartments valued at nearly R100m. At the same time, the number of registered clients has swelled to a hefty 70,000. Properties are typically mortgaged with a 30% loan-to-value ratio.
Finnemore’s strategy is to offer a mix of rental apartments for investors to choose from, both in terms of geographic location and tenant profile. For instance, the current portfolio is spread across eight developments. They range from the middle-income sectional-title Green Reef Village complex in Boksburg, which caters to tenants who can typically afford to pay average monthly rentals of R5,500, to a high-end development such as the Polofields in Midrand where monthly rents can reach R18,000. Most developments offer a range of communal facilities such as pools, gyms, restaurants and bars.
Finnemore says some units are bought off-plan and others are already completed and tenanted. Each purchase is thoroughly evaluated to ensure that optimal yield and capital growth potential is realised for investors. For instance, buying bulk with crowdsourced funding from individual developers allows EasyProperties to negotiate discounts on the purchase price. He adds: "The idea is to provide a diversified mix of investment opportunities to help mitigate potential risks such as vacancies, delinquent tenants and rental arrears."
EasyProperties’ latest IPO, which will open to investors this week, comprises 10 apartments worth about R23m, which were bought at Balwin’s upmarket Polofields development in Waterfall in Midrand.
So what sort of returns can investors expect?
Finnemore stresses that targeted returns vary for each property (or portfolio of properties) to appeal to different types of investors. For instance, some properties offer higher income yields while others offer higher capital growth potential.
Annual net yields and internal rates of return (a combination of net yield and assumed after-costs capital growth) are provided for each investment opportunity. The latter varies between 10.2% and 12.4% — not too shabby, considering that cash in the bank offers you no more than 4%-6%.
Though the EasyProperties fractional model may still be untested in SA, industry commentators say the investment case for the residential property market as an asset class is looking more compelling than that for the office and retail sectors.
Craig Smith, head of research at Anchor Stockbrokers, expects more investors to gravitate towards the rental housing market, given the structural headwinds faced by large segments of the office and retail property markets.
He says income and capital returns in the office and retail markets have come under huge pressure due to pandemic-related trading restrictions and rental discounts to struggling tenants. What’s more, residential portfolios are generally better protected against the threat of rising vacancies than office and retail buildings, given that they provide greater diversification in terms of their occupier base, which Smith argues makes it easier, in theory, to fill vacant space when leases aren’t renewed.
Recent data from mortgage originator ooba confirms that the housing market has emerged from Covid in remarkably good shape.
Average house prices as tracked by ooba are up by a hefty 13.8% in the first quarter (year on year). That follows a similarly solid 11.7% rise in the fourth quarter of last year — the first double-digit price increases recorded by ooba in more than five years.
Rhys Dyer, CEO of ooba, ascribes the recent strength to the low cost of borrowing, coupled with the banks’ appetite to take on low-or no-deposit loans. He says: "The paradox of double-digit price growth recorded for residential property amid a pandemic, coupled with the worst global and local economic downturn since the global financial crisis of 2008, is astonishing."
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