Next property boom may be affordable homes

The property industry’s next boom might be led by affordable housing.

Housing for the so-called gap market (households earning ­between R3 500 and R15 000 a month) was 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 market segment.

The gap market traditionally earns too much to qualify for an RDP (Reconstruction and Development Programme) 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 R1.9 billion for investment in real estate. The fund aims to provide at least 35?000 affordable units for sale and rent by 2018.

According to IHS, only around 20 000 units a year are supplied by government and some private investors – not enough to make a dent in the backlog.

“It is clear that there is 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,” says 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,” says the unit’s chief executive, Marius Marais.

FNB’s Smartbond offers 100% home loans to households earning between R3?500 and R15 000 a 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 is massive demand and a proven business model,” says ­Marais. It’s in the group’s interest to do everything in its power to keep ­defaulting as low as possible. This includes encouraging clients to buy at fixed interest rates (a rise in interest rate can decimate a household earning less than R10?000), and compulsory formal home-owner education. If managed correctly, this market segment should not be seen as more risky than others, says Marais.

Absa Home Loans also offers an affordable housing product. The 110% MyHome loan 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 more than 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-improvement groups like Italtile and Cashbuild say the lower end of the market will form a bigger part of their focus.

Cashbuild chief executive Pat Goldrick said last week that the group’s focus on rural communities meant it could take advantage of the growth spurt that the affordable housing market was set to ­experience.

He says 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 says.

– Fin24.com