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Johannesburg – The property industry’s next boom may come from affordable housing.
Housing for the so-called gap market (households earning between R3 500 and R15 000 per month) has until now been seen as risky business for developers and financial institutions.
However, as the implications of the massive backlog hit home, industry players are falling over themselves to take part in the segment.
The gap market traditionally earns too much to qualify for an RDP home, and too little to qualify for a home loan. It is estimated there are between 600 000 and 800 000 homes needed for this market.
According to Rob Wesselo, the country manager for International Housing Solutions (IHS), the affordable housing market is the only segment showing attractive growth in the property industry. IHS is a global private equity firm which partners with housing developers.
The IHS SA Workforce Fund raised R1.9bn available for investment in SA real estate – with a focus on the affordable housing market. The fund aims to provide at least 35 000 affordable units for sale and rent by 2018.
According to IHS, the government and some private investors supply only about 20 000 units per year, not enough to make a dent in the backlog.
“You don’t see business queuing for the commercial or industrial sector, but there are queues for this segment because there is such a shortage.
“It’s clear there’s a need. There’s been a perception that people in this market don’t pay rent, but if your asset management is good this can be an excellent investment,” said Wesselo.
Banks have also come to the party. FNB’s housing finance unit was created to find ways of financing homes for the lower income market. “Research told us that only about 15% of the country’s households had access to home loans,” said the unit’s CEO, Marius Marais on Wednesday.
FNB’s Smartbond offers 100% home loans to households earning between R3 500 and R15 000 per month.
Despite the recession, FNB’s profit from end-user finance in this market grew by 84% in the 2009/2010 financial year.
“We see this as a great market; there’s massive demand and a proven business model,” said Marais.
According to Marais, despite the push by government to address the need for housing for the gap market, it’s in the group’s interest to do everything in its power to keep defaults as low as possible.
This includes encouraging clients to buy at fixed interest rates (a rise in interest rate can decimate a household earning under R10 000), and compulsory formal homeowner education.
If managed correctly, this market segment should not be seen as more risky than others, said Marais.
Absa Home Loans also offers an affordable housing product. The 110% MyHome loan offering covers bond costs (about 4% of the total purchase price). Borrowers also do not have to pay a deposit.
On the developer front, Absa launched Diliculo Investments, an affordable housing fund with over 2 000 units in its portfolio, in 2007. The fund plans to own and manage close to 4 000 units by the end of this year.
Listed companies have lauded the affordable housing market for propping up its earnings during the recession. Alterations and home improvements groups like Italtile and Cashbuild reported the lower end of the market is to form a bigger part of its focus.
Cashbuild CEO Pat Goldrick said last week the group's focus on rural communities means it can take advantage of the growth spurt the affordable housing market is set to experience.
He said home owners in the lower income bracket will want to improve and extend their homes.
"Everybody wants to get a share of this market," he said.
“This is a very exciting place to be right now, and there’s still so much left to do,” said Marais.
- Fin24.com
