The Fairland blueprint
Developer selling R550 000 units for R40 000
CITY OF JOBURG Property Company’s (JPC) integrated housing initiative planned for Fairland, which will see rich and poor live side by side in an upmarket cluster development, should provide valuable lessons on how to take the Department of Housing’s proposed inclusionary development policy forward.
The JPC, which manages the City of Johannesburg’s (CoJ) property portfolio, and Johannesburg Social Housing Company (Joshco), last week announced that they have entered into a contract with private sector developers in what’s believed to be SA’s first inclusionary housing development. The R200m project, comprising 187 two and three bedroom units, is planned for a council-owned piece of land adjacent to the new head offices of Wesbank and FNB Home Loans, off the N1, north-west of Johannesburg.
The contract was awarded to Crowzen, a joint venture between black-owned property development company Crowie Projects and ZenQ. They have agreed to allocate 30% (56) of the units to social housing.
These 55sq m, semi-detached units will be rented out to low-income families earning between R3 500 and R7 000 a month, at rentals of between R1 500 and R2 200 a month. The remaining 131 freehold units, sized between 150sq m and 280sq m, will be sold for between R1,5m and R2,2m.
Though the Fairland project is not linked to the Department of Housing, it comes shortly after the wake of the latter’s proposed inclusionary draft housing policy framework, which has caused widespread debate among key property players.
The Department’s draft proposal suggests that 10% to 30% of units in new housing developments with average selling prices of up to R900 000, should be sold at substantially reduced prices, to accommodate low-income earners. The general concern is that a policy of “forced” integration will erode profit margins for developers, as they would effectively have to subsidise the cheaper homes. Some also fear that the value of higher priced units in integrated developments will slump, as wealthier buyers will not want to invest in complexes where their neighbours may be from poorer communities.
Crowzen development manager, Anthony Forgey, hopes to prove the sceptics wrong. He dismisses talk that developers will make huge losses if new policy dictates that social housing units be integrated in upmarket projects. Forgey says, though, that each development will have to be individually evaluated to determine its feasibility.
In the Fairland case, Crowzen will still see a return on its investment. “We won’t be doing this if we can’t make money,” says Forgey.
However, he concedes that everyone involved in the delivery chain has to take a cut in profits, from the architect to the engineer to the project manager. “And you have to be clever at utilising land and resources optimally.”
That Crowzen will be subsidising the social housing units in the Fairland project is a given: development costs, for each 55sq m unit, are R320 000, while the market value is estimated at R550 000. Yet, the units will be sold for only R40 000 each to Joshco. Crowzen is getting the land at a reduced price, in terms of a land availability agreement with local council, paying an estimated 50% of market value, partly compensating for the shortfall. Forgey says the added incentive is that Crowzen could in future be allocated many more such projects on council-owned land.
Forgey insists that the company will not inflate prices of the more expensive units to cross-subsidise the cheaper ones. “If you push prices of units above market-related value they simply won’t sell.”
He argues that banks can also come to the party in integrated developments, through lower financing costs, which will help reduce developers’ holding costs.
Alan Dinnie, project manager for the JPC, says the Fairland project is likely to be a showcase for what can be done if local government, the private sector and communities pool resources to tackle the affordable housing backlog. Dinnie says developers cannot be expected to “go it alone” in integrated developments. “Local government, for instance, can share in the development risk by making subsidised, municipal land available.”
Dinnie says the Fairland development also demonstrates that selling the social housing units on to a third party, such as Joshco, as rental stock, takes away the risk of an integrated development potentially ending in disaster should low-income earners default on running costs such as levies, rates and taxes. “We are creating double accountability – tenants are responsible for the payment of monthly rentals to Joshco, while Joshco is responsible to the Homeowners Association for levy payments and property management. Dinnie says the process has been a huge learning curve. He concedes that the model is not perfect and that some aspects need to be tweaked. “We have realised that perhaps the income cliff in this particular development is too steep.”
Dinnie says, in future, they would look at closing the gap between the low-income units and the more expensive ones, with the latter’s prices ranging roughly between R400 000 and R900 000 instead of between R1,5m and R2,2m.
It will be interesting to see how quickly the R1,5m to R2,2m units sell, and to what extent, if any, upmarket buyers balk at living next to less affluent neighbours.
Dinnie believes it’s also crucial to get the buy-in from local communities. When JPC and Joshco first put their initial proposals forward to incorporate low-cost housing into JPC’s “Jerusalem” development precinct, more than two years ago, the Fairland community wasn’t impressed. So much so that the local Fairland Residents and Ratepayers Association formed the Jerusalem Action Group (JAG) to oppose the development. At the time Fairland residents were adamant about keeping affordable housing out of their neighbourhood. Dinnie says over a period of a year Joshco, JAG and JPC met regularly, eventually reaching agreement on development parameters for the site. These were unanimously approved at a public meeting early in 2006.
Deon Oberholzer, chairman of JAG, confirms that although JAG’s initial mandate was to stop any low-cost housing development in Fairland, residents have since had a change of heart.
Says Oberholzer: “We now support the project and are fairly satisfied that the final proposals address the main concerns of the community, with respect to the risk to property values, and the retention of the atmosphere of our suburb and surrounding areas.”
Pam Golding Properties has been appointed to market the development. The industry will no doubt wait with bated breath to see how quickly the R1,5m to R2,2m units sell, once they go to market in April, and to what extent, if any, upmarket buyers balk at sharing their complex with less affluent neighbours.
We won’t be
involved in the Fairland project if we can’t make