JOHANNESBURG – The well-heeled are catered for and enjoy a variety of options in residential property, but not so the middle to low-cost housing market. This potential for growth is making investors sit up and shift focus.
This trend is not only evident in South Africa, but also neighbouring countries where there is a strong investment case for the often under-supplied affordable sector.
Analysts at the Africa Property Investment Summit agree that the continent is abound with development opportunities in this space. Some are cashing in on the deficit in the supply of affordable and low-cost homes as, in many jurisdictions, this is the role of the state and private developers.
Phatisa, fund partner of the pan African housing fund Eton Price, says there is very little knowledge and understanding of certain pockets of the middle to lower income consumers.
“The middle income down to the bottom – that is where there is demand. But affordability is the consideration and concern,” says Price.
As such, residential counters are investing millions in understanding and rolling out affordable housing solutions for middle and low-income groups.
The demand is created in part by urbanisation in African economies, especially countries which are showing significant economic growth. The UN-Habitat estimates that African cities are becoming home to over 40 000 people every day. Most of the world’s largest cities, with population growth rates of 5%, are in Africa.
Banks a deterrent
But banks still have a tight grip on their purses when it comes to issuing credit, Price says. “Bank funding is a concern and the cost of borrowing is high, which curtails activity.”
Associate professor at the University of Cape Town Francois Viruly supports this view, saying that the affordable housing space is exciting and has potential for significant growth “until the banks move into the residential market.” The primary target by banks should be the middle class, Viruly says, which represents about 42% of Africans who are not significantly indebted.
Not only are banks cautious in granting loans to individuals to finance affordable housing, but they also shut their doors to private developers. CEO of Pangani Group Heri Bomani, says banks are sceptical of the balance sheet of developers and viability of affordable housing investments.
Despite the lack of funding, more investors are finding capital to invest in property projects, Price says.
Developers are also faced with the high cost of land. Price explains: “South Africa developers know that land is getting expensive [and] the affordable space is not cheap. Municipalities … apply the same rule in terms of payments [rates and taxes]. Developers are reducing space due to the costs of developers.”
Bomani agrees, saying land prices are a challenge in the continent, with speculative development pushing up valuations “by 1 000%.’
Tanzania property market
Tanzania is one of the continent’s ignored low- to middle class property markets. Its popular residential developments are units in expensive areas which buyers cannot afford, largely in urban and soughtafter nodes, he says.
“And you have the pension funds which play in the affordable space, but the middle class is still ignored. We have not seen mixed-use developments in Tanzania. If there is no investors, developments are not going to come to the market,” he says.