Student accommodation fund has potential, but be aware of the risks
Inkunzi Wealth has relaunched its student housing fund Ithubalethu, which aims to provide 20,000 beds over the next 15 years
The department of higher education and training estimates there is a shortfall of approximately 250,000 student accommodation beds in SA. This increases three-fold if you consider the needs of students attending Technical and Vocational Training (TVET) Colleges.
The government’s intention to increase tertiary student enrollments to 1.5-million by 2030 will result in a need for student accommodation to almost double over the next decade.
Asset management firm Inkunzi Wealth Group believes this makes a good market for investors prepared to put money into funds focused on buying or developing student accommodation. In many developed markets, student accommodation is an established sector of the listed property sector.
Inkunzi Wealth has relaunched its student housing fund Ithubalethu, this time inviting the public to invest in the unlisted fund, which will buy real estate specifically aimed at the student market. The fund aims to provide 20,000 beds over the next 15 years.
The fund appears to have much potential, but remains untested and unlisted, so before you invest be aware of the risks.
Last year, despite raising about R750m in capital from institutional investors of the fund, its attempts to list were ultimately undone by the collapse of the listed property sector following investigations into the Resilient group of companies.
This time, Inkunzi plans to keep the fund unlisted for at least the first five years, listing it as a real estate investment trust (Reit) only when it has raised R3bn.
“We aim to raise at least R250m in the first tranche, which will be concluded in April. We want to serve students with well-located, multi-purpose accommodation at R3,000 a month per bed,“ Owen Nkomo, director at Inkunzi Wealth, says.
The fund aims to be an unlisted one that will invest in a number of already built properties providing student accommodation, as well as develop properties for student housing. It will target a yield of 8.5% to 10% a year on properties that have tenants.
Nkomo says the fund will aim to grow income from income-generating properties at no less than inflation, or 6% a year.
Properties the fund purchases will be used to raise loans for the development of new properties, and the fund will target returns of more than 20% on properties to be developed.
The borrowing or gearing in the fund could extend to up to 60% of the investments in line with other listed real estate companies, Nkomo says.
While the first R250m tranche is being raised, funds will be invested in an interest-bearing trust account at 8% a year. Nkomo says Ithubalethu will, in future, also invest in offshore student accommodation to diversify the risk.
Is an unlisted fund safe?
Nkomo says Ithubalethu is registered with the Companies and Intellectual Property Commission as an unlisted, special-purpose acquisition company and has an independent board of directors dominated by women who will oversee the executive managers. It also has an investment committee composed of experienced real estate asset managers, developers and corporate financiers who will assess the investment opportunities.
The fund will be audited and the board has approved the rotation of its auditors every four years to improve transparency, he says.
Independent financial adviser Craig Gradidge at Gradidge Mahura Investments says before you invest you need to do, or get your adviser to do, a due diligence on the fund.
“They have provided an expected return outcome, but insufficient detail at this stage for how they will achieve this. They also do not have a demonstrable track record on delivering on such a project. However, these are not deal-breakers as there is a reputable team in place,“ Gradidge says.
He notes that the fund has the potential to be a good investment, allowing you to get exposure to the real estate sector without necessarily buying a property to manage. However, like any other investment, thorough research is essential to ensure you can take on the risks involved.
Nkomo adds that the student accommodation market is defensive, because even when the economy is under pressure, students continue with their studies and there is a high demand compared to supply of quality student accommodation.
The initial public offering (IPO) opened in December 2018 and will close on April 13 2019.