The Passenger Rail Agency of SA (Prasa) through its special-purpose vehicle, Intersite, and Eris Property Group are developing the R1.2bn Cape Town Station, a mixed-use development in Cape Town.
The development involves the construction of units with 3,200 beds for students funded by the National Student Financial Aid Scheme (NSFAS). It also includes the redevelopment of the 7,000m² retail precinct to boost foot traffic and commuter experience.
Scheduled for completion before end-2023, the development will accept the first intake of students from February 2024. Its retail offering will include banks, clothing stores and food retailers among other retail stores.
Prasa Group CEO Hishaam Emeran said Prasa is unlocking economic and social value through its property portfolio to assist in the generation of revenue to support its core business.
“Depending on market demand, Prasa encourages student accommodation, social housing and affordable open-market rental housing around its station precinct in pursuit of its corridor densification and revenue generation strategy.”
Emeran said some of its busy railway stations such as Park Station in Johannesburg attract retail opportunities due to the high volumes of passengers who use the station.
The state-owned entity continues to develop its portfolio by increasing the retail and commercial offerings at its stations, develop social and affordable housing closer to economic and transport hubs as well as develop quality student accommodation on vacant land and buildings close to learning institutions, in line with NFSAS rates through third-party developments.
Rebuilding infrastructure
Emeran said property development and rebuilding infrastructure are not mutually exclusive as both can be achieved. “Prasa’s financial sustainability was threatened by the disruption of train services and the business needs revenue to be financially sustainable.”
He said the state entity is rebuilding the passenger rail infrastructure after theft and vandalism. A total 27 out of 40 lines have been recovered and are operating. The intention is to reach 80% by the end of the 2023/24 financial year in March.
Prasa is rolling out new hi-tech trains and increased security visibility at its stations, inside the trains, the platforms and rail network.
Emeran said more than 60-million low-income households now have access to an affordable, cheap mode of transport connecting them to economic opportunities with most fares less than R10.
Prasa has invested R4.6bn through rebuilding the network and creating more than 6,000 job opportunities, with local small, medium and micro enterprises benefiting from the projects.
According to Norman Raad, CEO of Broll Auctions and Sales, investors and developers are snapping up student accommodation properties as demand exceeds supply.
“There is a critical shortage of student accommodation countrywide. This shortage means good opportunity for strong returns.”
Raad said setting up new student accommodation takes time due to zoning and accreditation requirements. Depending on quality and finishes, rentals range from R9,000- R12,000 a month in Cape Town compared with R3,000-R6,000 a month in Johannesburg.
High demand
Associate director at Galetti Dean Wiid said rental rates vary based on location, quality and facilities provided. Affordable shared rooms range from R2,500-R3,000 a month to more expensive private, fully furnished apartments priced at R8,500-R13,000 a month. Rates usually include utilities, security services and sometimes meal plans.
“Student accommodation is in high demand and this asset class remains resilient even in the toughest of climates,” he said.
Wiid said demand is driven by many university residences lacking enough beds to meet the growing needs of students and the introduction of NSFAS funding, which includes a built-in rental subsidy to help students find housing close to their campus.
Parents also buy these properties to accommodate their children, and many hold onto these as traditional buy-to-lets.
“When purchasing student accommodation-type properties, security, affordability and accessibility are key factors to considers,” said Wiid.
Wiid said in Cape Town, student accommodation shortfall was reported at 80% in 2022. Enrolments at higher education learning institutions are estimated to grow by about 2.2-million and savvy investors are taking note of the sector.
Wiid said investors such as Campus Key are early forerunners in this space. Its portfolio is valued at R6bn, with about 4,000 beds.
JSE-listed Growthpoint Properties recently announced a R1.2bn investment in student housing by 2026. In Johannesburg, Mill Junction student accommodation in Newtown is SA’s first residence built from silos and containers.
Prasa co-invested 25%, or about R351m, in the first-of-its-kind co-investment through Intersite. Prasa will not only get land rental but will through its co-investment substantially increase the revenue by sharing 25% in the net rental of the top structure.
“We are repositioning our stations as places where people can live, work and play while creating transit hubs to enhance the passenger and customer experience,” said Annette Lindeque, acting Intersite CEO and acting Prasa Corporate Real Estate Solutions (CRES) CEO.
Lindeque said they expect to conclude similar investment agreements with private property developers while unlocking value for Prasa.
Prasa owns a land portfolio of 4,500ha, which includes stations, depots, and rail reserve as well as property buildings. Its investment property portfolio is valued at more than R5bn. A portion of vacant land measuring about 200ha nationally still has a potential for development.
Its property portfolio comprising 1,400 leases contributes about R700m revenue annually. The group is targeting R1bn in revenue in the next three to five years.
CRES manages the railway stations, retail spaces at its stations, offices, residential spaces and land, making Prasa one of SA’s largest intermodal transport landlords.
Lindeque said that over the past few years, Prasa has intensified its property development strategies in line with best international practices of subsidising the cost of running passenger rail. Activities undertaken by international rail operating companies such as Hong Kong, Deutsche Bahn, Network Rail and Japan Railways generate a big portion of their net income from non-fare revenue activities.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.