Could institutional investment kickstart SA’s housing market?

One of South Africa’s biggest property investment companies, Calgro M3, has announced a new development near Sandton, Gauteng, that will deliver 20 000 to 30 000 new homes – the latest sign of new growth in institutional housing investment.

Unusually, the Bankenveld District City project will focus on affordable and mid-market housing, providing much-needed homes in a region better known for expensive properties. It joins Calgro’s development pipeline behind their nearby Frankenwald development of around 20 000 affordable properties, which is expected to launch later this year. Other investment funds are also working in the affordable housing sector.

South Africa’s housing shortage is estimated to run into the millions. According to the Centre for Affordable Housing Finance in Africa, there were 2.4 million households registered on the National Housing Needs Register last year. While high demand has helped prop up both house prices and rents, it has limited the growth of the formal residential rental sector while keeping millions of people in insecure informal housing.

The social housing sector in turn has faced significant difficulties in delivering enough housing. But according to the South African Multifamily Residential Rental Association (SAMRRA), investment funds are putting more money into large-scale residential rental developments. If private sector investors can fill the housing gap, it could result in a market that works better for everyone.

Rising inflation could be a threat

After the encouraging fall in inflation at the end of last year, it rose again in the first two months of this year, hitting 5.6% in February. That’s close to the 6% top end of the target range set by the South African Reserve Bank. It prompted the Monetary Policy Committee to leave the repo rate unchanged again at 8.25% last month and reduced the prospects of long-awaited cuts later in the year.

High interest rates have slowed down housing sales as potential first-time buyers opt to continue renting instead. Additionally, they can reduce housing investment as developers also face higher costs. Even so, rates are still expected to fall by 0.75% come November 2024 – and if the market potential identified by SAMRRA is there, investors may bet on housing even with less-than-perfect conditions.