According to a top property financier, renting rather than buying is a good option given the high cost of housing finance and debt levels in this sector of the market.

Soula Proxenos, Managing Partner of International Housing Solutions (IHS) which is funding the Soweto development called Protea Glen says when one takes a bird’s eye view of the affordable property market, the rental model - given the massive supply and demand mismatch - was ideal. 

 “Overall the demand for housing in the affordable property sector is huge. But, access to finance and associated costs are driving consumers to rent rather than buy.

“For developers and investors like I H S, the high demand plus the relatively low default rate in rental payments make it an ideal product.”

In Soweto, 100 of the 176 units have been built and are already 100% occupied. The remaining 76 units, which are currently under construction, will be completed next month and it is envisaged that tenants will be able to move in the next two months.

The Protea Glen project is one of a number of similar development projects in Gauteng as well as in Durban and Cape Town in which I H S is involved and which are expected to become available to tenants in the next few months.

Yankho Chitsime of International Housing Solutions’ Development Team says the development is aimed at providing affordable rental opportunities to individuals earning less than R15 000 a month.

“There is huge demand for rental accommodation for this segment of the market. The response has been phenomenal with all the available rental units snapped up as they come onto the market.”

“Research shows that despite the high demand, there is very little stock at present.  And because of the high cost of housing finance and general high debt levels of many SA households at present, providing homes for sale is not necessarily the best option.  Our rental model is particularly fitting for these homeseekers.”

The development team has partnered with Trafalgar Property Managers, which manages close to 50 000 units on behalf of owners nationally and is highly respected in the residential rental market, to handle all the letting.

The Soweto project is being co-funded by the National Housing Finance Corporation (NHFC) which has invested R29,4-million. The developer is part of RBA Holdings which is listed on the JSE ALTX and has built more than 6700 houses in Gauteng.
 
IHS has already committed over R500-million of its R1,3-billion South African Workforce Housing Fund into creating 17 000 new or renovated units. It expects to have doubled its investment levels to around R1-billion by the end of this year.

Among its current projects are a partnership with AFHCO to convert the old Greatermans building in downtown Johannesburg into over 400 rental units, another with the Brian Falconer Property Group to develop 2 400 new homes near Carnival City, a third with Calgro M3 Holdings to develop some 6 400 homes in Fleurhof, south of Johannesburg, and one with the Aengus Group to refurbish 1 700 homes in the inner city Johannesburg area.

Proxenos says developers like RBA chose to partner with IHS in order to reduce some of their risk exposure on a single project and by so doing they are able to commit to more projects.

“IHS provides capital upfront without the need for the developer to pay interest. It operates on an equity basis instead which allows developers to grow their businesses and manage their own capital more efficiently without having to worry about interest payments.”

She says institutional equity investments in housing projects, especially in the rental and affordable housing space is still a relatively new concept in SA, most funders still provide debt-based instruments to projects.

“IHS is different in that it provides the majority of the equity needed in a large affordable housing deal. Simply put, this is the total cost of the project less the portion that will be funded by debt (generally provided by commercial banks).”

“For IHS as an equity investor, the return will come in its share of the profits, which will flow from the success of the projects. Another advantage we have over traditional development financers is our in-depth experience and global perspective and best understand the challenges from a global view.”

“We remain very positive about South Africa. The 2010 FIFA World Cup exuberance and the worldwide recovery - which will hopefully be more apparent this year - is fuelling the bounce back in the overall property market.” says Proxenos.