Property developer Calgro M3 and real estate investment trust (Reit) SA Corporate Real Estate have partnered to alleviate the shortfall of housing units in the low- to mid-cost segment of the residential market, especially in South Africa’s metros.

The JSE-listed companies will establish a new company AFHCO Calgro M3 Consortium, in which SA Corporate will own a 51% stake and Calgro M3 49%.

AFHCO will, over the next few years, build a substantial residential portfolio to provide greater access to rental options within the country’s metros.

“The intention is to build a substantial residential portfolio in the next few years, with the ultimate goal to reach property investments in the residential market in excess of R10-billion,” says SA Corporate MD Rory Mackey.

AFHCO Calgro M3 will initially acquire new units developed by Calgro M3 in Johannesburg and Cape Town for R1.64-billion.

This will be followed by further acquisitions from Calgro M3 over the next few years, as well as acquisitions from other established rental portfolios where these are available at attractive returns.

“The current housing shortfall in metropolitan areas is estimated at a mammoth two-million units. Despite government’s commitment to closing the gap, spending on infrastructure for housing development is under pressure and this joint initiative will assist government in improving living conditions for ordinary South Africans,” says Calgro M3 MD Wikus Lategan.

SA Corporate believes residential property investment as an asset class represents a compelling investment case with the opportunity to establish a portfolio of significant scale in a sector with underweight listed exposure and defensive characteristics due to its nondiscretionary nature.

Mackey adds that the expertise of both companies in their respective fields will complement one another. SA Corporate will bring years of experience as a property asset manager and Calgro years of residential development experience, to ensure the successful roll-out of a mass residential portfolio.

An added benefit of the partnership for Calgro M3 is that it will strengthen its annuity income drive, which was started with the company’s now established memorial park business.

The annuity income and expected dividend stream will enhance the group’s ability to gear its projects into the future. Additional funding will, in turn, accelerate the group’s growth in both the residential and memorial park markets.