Ithubalethu Fund offers a way to invest in student digs
Preparing your child for university is a daunting experience that includes the excitement of their new-found freedom as well as the responsibility for both parent and student that comes with it.
The financial obligations that extend beyond the registration fees, ongoing fees and textbooks to securing comfortable, safe and affordable accommodation, do not come cheap.
Not being able to find a home for your not-quite-independent adult child can further fuel your fretfulness.
Despite the department of higher education and training committing more than R4bn to develop around 300000 new bed spaces for university and TVET colleges under its student housing infrastructure programme, the nation still faces a huge student accommodation crisis.
This shortage of beds will likely intensify if the government's drive for free education meets the target of getting 1.5 million students enrolled in higher education institutions by 2030.
Asset management firm Inkunzi Wealth Group says this is where investment opportunity lies.
The company has re-launched its student housing fund, 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 20000 beds over the next 15 years.
"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, multipurpose accommodation at R3000 a month per bed," said Owen Nkomo, director at Inkunzi Student Accommodation Fund, Ithubalethu.
How will I make money?
Nkomo says the fund aims to grow income from income-generating properties at no less than inflation - increasing at 6% a year.
Management will use tax benefits currently on offer by the government and borrow to enhance returns.
The fund also aims to use the properties purchased to offer loans to developers who want to build student housing and will target a 20% return on these properties and no more than 60% gearing or borrowing in the fund, in line with other listed real estate companies.
The company will only consider listing on the stock exchange after a five-year period and will offer investors more opportunities to invest over time.
Nkomo says Ithubalethu will look to invest offshore in future to diversify the risk.
Will my money be safe?
Ithubalethu is registered with the Companies 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.
Last year, despite raising some 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.
Nkomo says the fund will only list as real estate investment trust when it has raised R3bn. Weighing up the pros and cons of the investment, independent financial adviser Craig Gradidge of Gradidge Mahura Investments, says due diligence needs to be done 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 says 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 risk.
Nkomo added that the student accommodation market is defensive, because even when the economy is under pressure, students still continue with their studies and there is a high demand versus supply of quality student accommodation.
The initial public offering opened in December last year and will close on April 13.
Ithubalethu in a nutshell
• An unlisted fund that will invest ina number of already built properties providing student accommodation as well as develop properties for student housing.
• Aims to raise R250m from the public to buy the properties.
• Targets a yield of 8.5% to 10% a year on properties which have tenants.
• Targeting returns of over 20% on properties to be developed.
• Could have up to 60% gearing (borrowing).
• Funds will be invested in an interest-bearing trust account (8%a year) until the R250m has been raised to purchase the properties.