Somewhere in Johannesburg tonight, a 30-year-old professional will pay rent to an institutional landlord and live in a professionally managed residential development, while their pension fund has little or no allocation to the asset class they are helping to sustain. That is the South African multifamily paradox: pension fund members are already supporting one of the most resilient income streams in domestic property as tenants, while their retirement capital remains largely absent from the opportunity. Residential property remains materially underrepresented in institutional portfolios.
The allocation gap is stark. In the MSCI South Africa universe, retail accounts for 61% of roughly R410 billion in institutionally held property, while multifamily residential accounts for just 6%. In the Netherlands, the United States and much of developed Europe, Multifamily residential is among the largest institutional property allocations, in some markets exceeding 13% of listed exposure alone. During COVID, global institutional capital fled into apartments, not out of them, precisely because the asset class is understood to be defensive. South African allocators, meanwhile, remain concentrated in the sectors most exposed to a low-growth economy: retail and the industrial assets tethered to it.
This is no longer an information problem. Nine years of MSCI data now exist on South African Multifamily assets and the numbers are unambiguous. Income returns sit at around 8.5%, comparable with every other property sector. Net income growth has run consistently above inflation, at 4% to 6%.
At the worst point of COVID, leading institutional portfolios held occupancy above 90% with bad debts below 3.5%. Listed vehicles kept paying dividends through the lockdowns while offices emptied out. During the July 2021 unrest, shopping centres burned; nobody burned down their own home. The lesson is the one operators have repeated for a decade: whatever happens in the economy, the rent gets paid first. Housing is the last expense a household abandons, which makes a diversified rent roll of thousands of tenants structurally more resilient than a lease register anchored by a handful of corporate tenants.
The objections that kept institutions on the sidelines have inverted, one by one. Short leases were supposed to mean income volatility; in practice, thousands of monthly leases across diversified income bands and employment sectors are a risk mitigant, not a risk driver and pricing can be corrected overnight, a flexibility no other property sector offers. Churn was supposed to be unmanageable; the country’s largest operators now turn over 300 to 500 units a month as routine, with move-outs before noon and move-ins after, running combined vacancy and bad debts as low as 2%. Tenants were supposed to be transient; average tenure has lengthened from 18 months towards three years, not far off an office portfolio. Lenders were supposed to be sceptical; senior debt at 75% to 80% leverage is now vanilla and the banks that once demanded proof are now competing to fund the sector.
What remains is the operator question and here allocators are right to be demanding. This is a consumer business, not a passive property hold. The returns are generated by the engine behind the asset leasing machinery, collections discipline, tenant experience and cost control which means two identical buildings on the same street can produce entirely different outcomes. The jockey is the investment. But that is an argument for rigorous manager selection, not for avoidance. South Africa’s institutional operators have spent twenty years building exactly this capability and those who have toured the multifamily product in the UK, Germany and the US return with the same observation: the domestic product and its management are not lagging global standards. In many cases they exceed them.
The return profile, meanwhile, answers the question investors actually ask. Funds in the affordable segment are targeting net income yields of 9% or better with inflation-linked escalations, translating to total returns of CPI plus eight delivered alongside measurable social impact in a country short more than three million adequate homes. This is not concessionary capital. It is a commercial return that happens to solve a national problem, in an asset class where demand is so far ahead of supply that the constraint on growth is land, zoning and municipal approvals but never tenants.
That supply-demand imbalance is the real signal for long-dated capital. Roughly 23% of South Africans rent and the majority still rent from individual landlords, not institutions. As that stock migrates to professionally managed platforms with the security, amenities and service quality individual landlords cannot replicate, the institutional multifamily universe will grow regardless of who funds it. The sector’s leading operators are doubling their portfolios by 2027. The question facing pension funds is not whether this asset class will scale. It is whether their members will own any of it when it does.
Pension liabilities are long-dated and inflation-linked. Multifamily income is long-dated and inflation-tracking. The match is almost mechanical, which is why the sector’s absence from institutional balance sheets is becoming harder to defend than its presence ever was. The data exists, the operators are proven, the lenders are in and the first large listed and state-linked investors have moved. What was a frontier a decade ago is now simply an allocation decision and every year it goes unmade, members carry the concentration risk of portfolios built for an economy that no longer exists.
By Shaila Desai, Head of the Old Mutual Residential Impact Fund