'The future of housing is in rentals'

GERALD Leissner's interest in lower-end residential property was tickled by his 12-year stint as a director of the Johannesburg Housing Company. The NGO, which focuses on the inner city, now owns about 5000 units.

"They have no arrears and very few vacancies because it is well managed. It works," says the Arrowhead CEO.

He also praises syndicates Jozi and Jika for letting space in Hillbrow and Berea, which most speculators avoid: "Rents are between R2000 and R5000 a month for people who earn R5000 to R15000 a month."

Leissner bought most of Arrowhead's bottom-end housing stock - 40 buildings - from Jika for R340-million. Jika wanted to use the proceeds to invest more in high-growth student housing - a market Leissner is prepared to watch simmer, for now.

"We bought from Standard Bank a student accommodation complex with 300 units, which houses about 700 or 800 students, in Honeydew. But that's let to Monash University so it's almost like a commercial lease."

The same caution applies to mineworker housing - a market which Leissner acknowledges could explode.

"People have built houses for the mines, and have leases with the mining companies. They've tried to sell stuff, but that's very difficult - a lot of the miners are still migrants - and the rest is rental stock."

In the meantime, Arrowhead sits on one small cluster for miners in Soweto, for which Gold Fields is the tenant.

The urban rental market may be tough, but freehold sales are even more difficult. Leissner knows first-hand.

"We had, together with a company called Angus, office space which we had mothballed. The building in Smal Street Mall, between President and Pritchard streets, was converted into residential units for sale. It was a failure.

"Residents bought sectional title units and the repayment was almost the same as the rent they would have paid. But it fell apart. They were never educated enough to understand that they'd bought anything, and they walked away."

That is why Leissner puts his faith for the future of housing in major landlords who run seamless rental operations.

"The idea that everybody needs to own a home is never going to happen. The difficulty is to find equity to buy a house - the banks are still lending but it's much harder than it used to be."

Leissner is cynical about the hope that an investment in a home promises fat capital gains. He uses the example of his house in Glenhazel, Johannesburg. Over the course of 20 years, he doubts he would have made more than 6% a year.

If he sells it (no thanks to inflation, depreciation and maintenance) he may make zero net profit.