The rental housing subsector is underrepresented in South Africa, comprising only 2% of the property assets on the JSE compared with at least 15%-20% in the US and Europe. But that doesn’t mean the investment case for residential property is any less compelling than retail, offices or logistics.
In fact, SA Corporate Real Estate CEO Rory Mackey reckons the rise of the country’s middle class — households that can afford monthly rentals of R5,000-R10,000 — and a shift from buying to renting mean that residential is now a more lucrative investment proposition than traditional commercial real estate sectors.
In addition, online shopping and remote working are likely to continue to have a negative impact on the case for retail and offices, which should result in investors increasingly turning to alternative sectors with better growth prospects. “Residential ticks the boxes,” he says.
Residential is already the largest asset class in the world, accounting for roughly 40% of all fixed capital, says Mackey. According to the MSCI global annual property index, residential property delivered a total annual return of 6.1% in the 10 years to December 2024, second only to industrial property at 11.3%. Retail and offices lagged at 3.3% and 3.7%.
Mackey tells the FM that local real estate investment trusts (Reits) and institutional investors have shied away from the affordable rental housing market because it was seen as high risk. A decade ago, most of the existing stock was located in inner cities, typically associated with urban decay, slumlords and defaulting tenants. But Mackey says these negative perceptions are no longer valid, with the quality and scale of housing portfolios in South Africa increasingly starting to mirror that of their global counterparts, typically referred to as multifamily residential. He says SA Corp hopes to lead the way as it bulks up its rental apartment business.
It’s not just about getting to the right scale but also refining the quality of your portfolio
— Rory Mackey
Last month, Mackey put his money where his mouth is by clinching a R1.7bn deal that added 2,000 rental units to its portfolio — The Parks Lifestyle Apartments, a sprawling middle-income estate in the Riversands node on the outskirts of Fourways, a stone’s throw from upscale Dainfern and Steyn City.
The acquisition takes SA Corp’s housing portfolio to nearly 20,000 units (including about 4,300 student beds). The company first entered the sector in 2014 with the purchase of Afhco in the Joburg CBD, and in 2023 added IndluPlace, a JSE-listed housing Reit focused on low- to mid-income tenants.
The Parks acquisition lifts SA Corp’s residential exposure to 49% of total assets, with the remainder spread among retail, offices and industrial. The purchase, which was concluded at an attractive income yield of 9.6%, is “transformative for our portfolio, both in quality and scale”, says Mackey.
The estate offers 2,000 studio, one-, two- and three-bedroom apartments, complemented by extensive lifestyle amenities including a clubhouse, gym, cinema, swimming pool, tennis courts, running trails, braai pavilions, a water park and a nursery school. Rentals range from R5,800-R11,200, with vacancies below 4% since the completion of the last phase about a year ago.
Mackey expects the acquisition to boost distributable income by at least 1.5% in the year to December 2026.
He hopes to continue to reshape SA Corp’s housing portfolio, selling older CBD stock and reinvesting in higher-quality suburban developments. Over the past five years, 33 buildings have been disposed of for just more than R1bn. In the past year, sales were concluded at an average 20% above book value.
Mackey plans to sell another 3,500 apartments priced at an average of R400,000 over the next three years, mainly in Kempton Park, Randburg, Windsor, Joburg south and the East Rand.
The aim is to grow the residential portfolio from R7bn now to more than R10bn, paving the way for a separate listing. “But we don’t want to list too soon. It’s not just about getting to the right scale but also refining the quality of your portfolio.”
The market has clearly warmed to SA Corp’s move into suburbia. Last month, after the Parks deal was announced, the share touched a six-year high of R3.41. The uptick was no doubt supported by fellow JSE-listed Castleview and Emira both increasing their respective stakes in SA Corp. Together they now hold about 30%.
The stock still trades at a discount to NAV of about 20%, which independent analyst Keillen Ndlovu believes should narrow as SA Corp diversifies away from inner cities to higher-quality suburban estates that offer tenants a superior product in a secure, amenity-rich environment. “The Parks is a top-tier residential development and takes SA Corp’s housing portfolio to the next level,” he says.
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