Bridg­ing the gap

Shot in the arm for cash-strapped de­vel­op­ers

Finweek English Edition - - Property - JOAN MULLER

BANKS MAY HAVE tight­ened the lend­ing taps to prop­erty de­vel­op­ers and home­buy­ers, but in­ter­na­tional in­vestors are still bet­ting on South Africa’s af­ford­able hous­ing sec­tor as a long-term cap­i­tal growth play. In­ter­na­tional Hous­ing So­lu­tions (IHS), a joint ven­ture be­tween United States mort­gage lender Mu­niMae and Ir­ish prop­erty group Howard Euro­cape, has over the past 18 months built up a R2,4bn war chest to help fi­nance af­ford­able hous­ing projects in SA.

The R2,4bn pri­vate eq­uity fund – SA Work­force Hous­ing Fund – has raised cap­i­tal from US and Cana­dian pen­sion fund man­agers, the US Over­seas Pri­vate In­vest­ment Cor­po­ra­tion (OPIC) as well as a few South African in­vestors. Soula Prox­enos, the Lon­don-based MD of IHS South Africa, says the fact the fund has been so suc­cess­ful in its cap­i­tal rais­ing ef­forts amid the global liq­uid­ity crunch sig­nals a strong vote of con­fi­dence in the growth po­ten­tial of SA’s hous­ing sec­tor.

Says Prox­enos: “In­vestors are tak­ing a longer-term view. They re­alise there’s huge po­ten­tial to ad­dress SA’s mas­sive mis­match be­tween hous­ing de­mand and sup­ply over the next 10 years.”

SA Work­force Hous­ing Fund con­cen­trates on fund­ing de­vel­op­ments aimed at house­holds earn­ing roughly be­tween R7 500 and R20 000/month – projects where units would typ­i­cally cost be­tween R300 000 and R600 000.

That in­come bracket is of­ten de­scribed as the “miss­ing mid­dle” be­cause fam­i­lies within that bracket earn too much to qual­ify for Gov­ern­ment-funded hous­ing but not enough to af­ford most of the hous­ing stock cur­rently avail­able for sale or rent.

Prox­enos says with banks be­com­ing more cau­tious in pro­vid­ing de­vel­op­ment fi­nance, it’s be­com­ing in­creas­ingly dif­fi­cult for de­vel­op­ers with lim­ited cash flow to get in­volved in largescale hous­ing projects. Cur­rently, most banks are only pre­pared to fi­nance up to 70% of to­tal de­vel­op­ment costs. IHS would help fi­nance a project in the form of a 20% to 25% eq­uity stake. The R2,4bn fund there­fore has the ca­pac­ity to get in­volved in hous­ing projects with a to­tal de­vel­op­ment cost of around R10bn.

Prox­enos says by tak­ing an eq­uity stake up front de­vel­op­ers are re­quired to put in a far small- er pro­por­tion of their own cap­i­tal to se­cure a bank loan. The idea is for IHS to part­ner with de­vel­op­ers on both green­field and re­de­vel­op­ment projects.

Prox­enos says de­vel­op­ments needn’t be lo­cated in low-in­come ar­eas. In other words, the fund is happy to part­ner with a de­vel­oper build­ing a sec­tional-ti­tle com­plex in Jo­han­nes­burg’s north­ern sub­urbs or with a de­vel­oper sup­ply­ing stand-alone homes in Soweto. “As long as both projects are priced in the R300 000 to R600 000 unit range.”

He says the key cri­te­ria for IHS is to part­ner with de­vel­op­ers who can of­fer a qual­ity prod­uct at the right price. “Size is also im­por­tant, so we look for larger projects worth at least R100m.”

IHS has al­ready closed deals with two de­vel­op­ers, one cur­rently plan­ning a green­field hous­ing project in Wit­bank and the other con­vert­ing the old Greater­mans head of­fice in down­town Jo’burg into 400 rental apart­ments.

Soula Prox­enos

Off­shore in­vestors bullish on SA hous­ing.

Newspapers in English

Newspapers from South Africa

© PressReader. All rights reserved.