In the banks’ terminology “affordable housing” is defined as residential units selling for up to R250,000 each to qualifying households. Alternatively, residential units let for up to R2,580 per month also count. These are current 2007 figures.

Rental growth in the inner city areas has been strong, as has the take up of units in the newly refurbished and converted buildings. This is certainly leading to improvement in the urban fabric and satisfaction for households living in theses areas which benefit from access to the transport facilities at transport nodes.

However, the success of affordable housing investments in the inner city goes beyond mere price and structure. Superior property management skills are vital for success. These are further enhanced when run in conjunction with City Improvement Districts.

The key to attracting developers to undertake new affordable housing developments and ensuring the success of these projects is “certainty”. This applies to the determination of holding costs, obtaining the numerous statutory clearances and approvals in a known timeframe, building costs, interest rates, selling to an educated purchaser, etc.

Many of these elements are outside the direct control of the developer, such as the timeframe for obtaining statutory clearances and approvals from national, provincial and local Government. The good news is that the economy is showing better signs of stability.
There are initiatives being undertaken by the banks and the government departments to enable developers to deliver suitable quality affordable housing profitably. These include procuring land, formulating a set of project management and quality control mechanisms, especially for large residential development projects or integrated human settlements, which would allow BEE contractors, with small overheads, to build the “affordable housing” stock at the lowest price without lowering quality standards.

Further, project managers could involve material suppliers selling on a bulk basis to a development to obtain discounts for quantity, enhancing both deliverability and profitability.

The other flaw at present is the Sectional Title legislation. It is in need of an overhaul to meet the longer term needs of affordable housing developments. It is a complex task being a Trustee of a Body Corporate or a Managing Agent. The banks, government, developers, managing agents and owners need to amend the legislation to minimise the risks of Body Corporates defaulting as sectional title is a cost effective method of delivering residential units into the affordable housing market.

Richard Rubin,

Aengus Property Holdings

South Africa is experiencing a successful social transition. However there remains a serious shortage of the kind of quality affordable housing that is needed to support this transition.

In seeking to profitably address this we soon discovered that traditional affordable housing is not easy to deliver in a financially viable manner due to inflated building costs and high land prices. Thus obtaining access to older buildings at a reasonable price is key in the current market and, in our case, this has been achieved by partnering with ApexHi Properties.

Access to these older, multi-storey properties resulted successfully in providing affordable, yet upmarket, loft living.

It is important to clarify that affordable housing does not mean sub-standard accommodation. It is not a euphemism for RDP housing. Affordable housing permits bringing a value added proposition to the market – which is achieved in quality buildings with well managed units that feature upmarket finishes.

Our affordable accommodation units would typically sell in the price range of R220,000 and higher and be affordable for those individuals or households earning between about R3,501 and R10,000 per month.

Within this we are able to provide a complete lifestyle solution which includes cinema rooms, a laundromat, an internet café, DSTV in every room, and a convenience store. In many cases this affordable housing allows tenants to live closer to work, provide access to public transport where required and offer the convenience of retail at ground level. This facilitates the creation of a “live, work, play” scenario which is often, mistakenly, not associated with affordable housing.

Ground floor retailers also benefit with a pick up in business as a result of the conversion of the upper portions of buildings to residential and buildings are therefore delivering stronger returns.

In this way we have succeeded in creating affordable and aspirational loft living, and through effective branding we’ve been able to attract a more affluent market.

This approach has paid off for us – we are attracting a higher income earner with a product that has similar costs to existing affordable housing products, and we are seeing impressive returns from our buildings. 

The so-called affordable housing market has become quite the buzzword in recent years, with financial institutions putting a lot of resources into their efforts in this residential segment. The affordable housing market comprises those married households earning between R3,501 and R8,000 per month. The typical house price range in this market is R200,000 to R300,000. Unit sizes generally range between 50m2 and 90m2 on a stand size between 100m2 and 300m2. A Banking Association study in 2005 determined that the housing shortage for the affordable segment amounted to around 622,000 units in 2005, and that this shortfall could rise to 727,000 taking into account the rate of new stock growth at the time.

There is much optimism that this segment could be very profitable from a developer and financial institution point of view.

Why the huge improvement in attitude of investors towards this market in recent years? Well firstly there is little doubt that there has been a significant improvement in the economic environment in recent years. Major restructuring of the South African economy in the 1990s, which involved significant amounts of labour shedding and a “jobless growth” environment was probably not positive for perceptions of the risks involved in the lower end of the housing market. Today, however, more rapid economic growth rates of 4-5% in South Africa have translated into a “job creating” as opposed to job-shedding environment. This, coupled to the racial transformation of the labour market implies significantly better job prospects (and thus mortgage repayment prospects) for this market.

In addition, a memorandum of understanding between banks and government has seen the banks commit to providing R42 billion in terms of end-user funding to the affordable housing market. Government has provided for a sliding scale subsidy system, which would range from R3,360 for a household earning R7,000/month, to R23,548 for a household earning R3,600/month. Admittedly, therefore, the affordable housing market receives some artificial support in order to support the demand side.

The final key factor in making this market profitable to developers and banks is the use of economies of scale. Affordable housing is a low cost/low profit margin affair. In retail terms the appropriate buzzword would be “pile ‘em high and sell ‘em cheap”. The developers partnering FNB in its affordable housing ventures could typically complete as many as around 3,000 affordable houses per annum.

In closing, it would not appear that this market will be saturated in the near future. Currently, the rate of affordable housing completion per annum looks to be in the region of 100,000. At this rate, it would take well into next decade before the shortfall could be wiped out.