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More affordable housing on the local bourse

JSE-listed Balwin Properties and Transcend form an alliance to develop 8 900 affordable rental apartments.

Homebuilder Balwin Properties and housing fund Transcend have partnered to develop 8 900 affordable rental apartments worth R6.4 billion, the largest residential development value for the JSE’s real estate sector.

The five housing apartment developments will be developed in key Gauteng nodes over the next six years.

Upon completion, monthly rentals for the apartments will be priced from R4 000 to R8 000, which is generally considered to be in the affordable housing market.

Balwin, which develops and sells sectional title units, will construct the five apartment developments and Transcend will purchase them. The apartments will be sold with secured tenants.

The first apartment development will be delivered to Transcend in early 2018, boasting 1 200 apartments that are located in Gauteng’s Boksburg.

“There is still an undersupply of affordable housing in SA. Despite access to credit being tight for consumers and low economic growth, we are still seeing a huge demand for quality and affordable accommodation,” said Rob Wesselo, Transcend’s CEO.

Supporting Wesselo’s views are latest figures from the Department of Human Settlements, which puts SA’s housing shortage at two million. The department is looking to make a dent in the shortage by delivering 1.5 million housing opportunities in the next two years. However, the private sector is expected to bridge the housing gap faster than the government.

For Balwin, the partnership promises it profit margin growth after building and selling the apartment units while for Transcend it’s the opportunity to build scale to its property portfolio.

Transcend’s property portfolio comprises of 13 properties, with a total of 2 472 residential units that are located in Gauteng, the Western Cape and Mpumalanga. After the residential units are completed and transferred by Balwin, its property portfolio is expected to grow from R1.2 billion to more than R7 billion.

It also has a R2.5 billion pipeline of 3 700 residential units that could be acquired from International Housing Solutions, the private equity group that formed Transcend and listed it on the JSE in 2016.

Wesselo said there are not many quality residential property portfolios that can be acquired from pension funds or real estate investment trusts (Reits), which made sense to go into partnership with Balwin.

“Tying up these affordable housing transactions with Balwin was a coup. Balwin is the only residential property developer that has access to large land holdings for development in urban areas,” he said.

Steve Brookes, CEO of Balwin, said Transcend’s focus on apartments that are located in desirable neighbourhoods and are in proximity to economic nodes is in line with Balwin’s development model.

Balwin develops and sells sectional-title residential estates in high-density and metropolitan areas in Johannesburg, Pretoria and Cape Town. Its residential units are priced at a range of R600 000 to nearly R2 million.

The partnership between Balwin and Transcend comes at the time when there is little residential property exposure in the JSE’s real estate sector.

Various figures from the asset management industry peg the sector’s exposure to residential assets at less than 4%. Interest among investors has been growing for specialist funds that focus on one sector instead of a hybrid of retail, office and industrial sectors.

The prospects of dealing with delinquent tenants, rental areas and eviction legislation that is perceived to favour tenants over landlords, has put off many investors from investing in housing funds.

Also, some investors believe property developers can achieve higher income yields on retail, office and industrial properties than the average 6% to 7% achieved in residential properties.

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