Advice and Opinion

Overcoming the affordable housing challenge

While there has been an increase in the volume of land coming on stream for affordable housing developments over the last few years, there are a number of challenges that need to be overcome in order to sustain this trend.

According to Rocco De Kock, Director of Valumax Group, one of these challenges relates to the often protracted procurement processes involved in obtaining Government-owned land, making it vital to identify and deploy mechanisms to assist in accelerating the sale of land. “Such mechanisms need to consider streamlining supply chain requirements as the existing system can make it difficult for officials to award projects/tenders. Key to improving this is simplifying tender/ decision making processes.

He says another challenge is that privately owned land that is made available for affordable housing developments is becoming more difficult to obtain, as the price of land continues to increase. “As a result, developers have to resort to structured deals which are not always attractive for landowners.”

Manie Annandale, Head of Nedbank Affordable Housing Development Finance, says that against this backdrop, Nedbank has made strides to ensure that it plays its part in ensuring that development finance is made available and structured to realise the opportunities found by developers. “To this end, we don’t employ a one-size-fits all model when granting finance, but rather take a considered approach and deal with each request on merit.” He adds that it is imperative that all stakeholders have a well-developed and coordinated strategy that presents viable solutions to the country’s land resource challenge.

The provision of some form of subsidy to developers to assist in acquiring the appropriate land would also be beneficial, as the latest policies dictate that development should take place along major transportation routes where public transport is readily available.

“This policy is the right direction, yet once again this increases the cost of the acquisition of land. In order to encourage greater participation in affordable housing developments, it is important to identify some form of subsidy to incentivize developers to acquire suitable land. I believe that there is sufficient land available to meet current needs – we simply need the correct investment structure to finance such deals and the right incentives to encourage development,” says De Kock.

De Kock notes that while incentives are important for developers, there should also be a form of motivation for the end-consumer to consider buying into higher density affordable housing developments. “In the bonded market, many people opt for single residential housing as the cost to purchase is rarely different to housing provided in higher density models. To encourage greater participation in these types of developments, purchasers could be offered a form of incentive, such as a subsidy or a rates holiday,” he says. “Currently the industry is falling short in this regard, as developers are concerned about investing in higher density developments when consumers tend to choose single residential housing.”

Overall, the larger property developers already have a solid land bank and track record; but De Kock says that there are additional opportunities for smaller developers to get involved in projects that the larger players do not take on. “There is certainly an appetite among the smaller developers to participate however, in order to do so they need assistance in obtaining finance for the land, which also presents opportunities for South Africa’s lenders to play a critical role in facilitating these deals.”

Annandale says that Nedbank has established a strong track record with a number of niche affordable housing developers who, whilst smaller than the major players, have attained excellent experience within their chosen demographic. “It may be more difficult for some of the smaller entrants who are new to the market to obtain financing without a track record, so we suggest such developers team up with larger companies such as Valumax, in order to progress the entity to a stage at which it can be funded.”

De Kock concludes that it is positive that we are seeing more land coming on stream, which has occurred as the provision of finance to the end-user has also become more readily available. “Of course, this provision of finance is happening alongside stringent scorecards, which is correct to avoid buyers running the risk of getting into financial difficulty.”