The Fair­land blue­print

De­vel­oper sell­ing R550 000 units for R40 000

Finweek English Edition - - Property - JOAN MULLER

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

money. An­thony

Forgey

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