Alleyroads asset auctions expose strain on South Africa's affordable rental housing
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Galetti is auctioning unfinished Alleyroads developments in Limpopo and Gauteng, with the affordable-rental landlord's distress highlighting how construction costs have outrun what low-income tenants can pay.
Parts of Alleyroads' residential portfolio are being brought to market after the affordable rental housing developer ran into financial distress, with Galetti Corporate Real Estate managing the sale and auctioning selected developments. Among the assets scheduled for auction on 25 November are a 13,176 square metre development at Kaya Lane Estate in Lebowakgomo, Limpopo, an 18,192 square metre development in Katlehong South, and a 12,288 square metre development at Umthala Mews in Vosloorus, near Johannesburg.
The group's difficulties appear to have been compounded by the economics of its development pipeline rather than its acquisition strategy. In late 2023 Alleyroads bought the Pulse Property Group portfolio for about R1.2 billion, adding 46 buildings across South Africa and roughly 3,300 student beds and rental apartments. Galetti chief executive John Jack said the acquisition was not necessarily a contributing factor because the portfolio was already generating rental income. “It was more likely the development pipeline which doesn't produce income,” he said.
Jack said rising construction costs would certainly have contributed, with building prices increasing by about 50% during the 2022/2023 period. That created a growing mismatch between the cost of delivering affordable rental housing and the income levels of the households expected to occupy it. “The LSM level occupying these buildings is on the low end and they have not seen much income growth, whereas building prices increased circa 50% during the 2022/2023 period,” he said.
The funding history illustrates the institutional appetite that supported the group's expansion. In May 2020 mezzanine fund manager Vantage Capital invested R82 million in Alleyroads' Kaya Lane Estates development in Lebowakgomo, and fully exited in July 2022 through a refinancing. In 2022 the International Finance Corporation announced a R325 million green loan to support more than 1,000 rental apartments around Johannesburg.
Guy Dowding, a director at Galetti Auction, said unfinished developments could still offer opportunities for investors willing to weigh the cost of completion against potential rental income, since land, planning approvals, bulk services and part of the construction may already be in place. “A cheap price isn't necessarily a bargain if there is still a fortune to spend,” he said.
Galetti was unable to comment on the group's total debt exposure or its largest creditors. Jack said the broader lesson is that developers must align the pace of new construction with actual demand and what tenants can afford. “Supply must closely match demand. Too much supply all at once may outstrip demand and, more importantly, affordability,” he said.