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Upside Returns Potential In SA's Affordable Housing Market

With over 900,000 people seeking affordable and social housing annually, and only around 25,000 new units becoming available each year, the market for affordable housing shows immense potential for investors, according to Nedbank’s Affordable Housing Finance division.

Manie Annandale, Head: Nedbank Affordable Housing Development Finance, says the investments in affordable and social housing in South Africa are in line with this trend.

Annandale notes that affordable and social housing present less of an investment risk than costlier housing due to the huge demand for suitable housing close to facilities in metro areas. “With up to 70% of South Africa’s population expected to be living in urban areas by 2030, the demand for housing is surging.

“We see a growing middle class seeking to buy homes priced at under R600 000. However, because developers are seldom able to produce housing priced at under R300,000 per unit, and the Finance-Linked Individual Subsidy Programme (FLISP) only subsidises properties priced under R300,000, we see a shortage of affordable stock. While the margins may not be high in this market, demand is massive. There is also huge demand for rental housing situated centrally, close to amenities and work, at an affordable rate for lower income groups.

“Nedbank plays a leading role in funding affordable and social housing developers, with more than R570m in affordable housing funding disbursed to date in 2013.  The bank now partners regularly with around 25 reputable and established developers across the country,” says Annandale. “We see that not only are the developers thriving on the back of huge demand, the beneficiaries are enjoying better quality of life, thanks to developments offering sound housing closer to schools, work and other facilities.

“Over years of financing these developments, we have learned that the key to funding affordable housing developments is flexibility. The finance model has to match conditions on the ground, and must be adaptable in line with changing conditions. If the developer discovers, for example, that there is far greater demand than anticipated, we may have to consider increasing the density in the development. Or it may emerge that the model should move from one based on sales to a rental model. It is also important for the housing development to meet local needs. For example – will residents be prepared to live in high density units or not? Can they use stairs? Do they need garages or carports?” These are merely some of the insights that need to be taken into consideration when developing affordable and social housing.

Annandale concludes that Nedbank’s partnership with reputable developers and investors is catalysing affordable and social housing developments at key development nodes across the country.

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