Advice and Opinion

Many challenges faced by developers offering affordable housing

There is a keen buyer interest in affordable housing in Cape Town but land on which to develop in this category is becoming more and more scarce and even though the new land zoning scheme promulgated this year in Cape Town centres around densification, the challenges in freeing up areas that are viable are becoming problematic to many developers due to excessive premiums being levied on land, says Shiraaz Hassan, commercial director for Asrin Property Developers.

Previously the development rights were quite restrictive and the new densification policies, encouraging high density schemes with certain new allowances made in increased units and floor levels allowed, has been welcomed in its being more relaxed in certain areas, said Hassan.

There are challenges, however, in the enormously drawn out zoning process, which could take up to three years before a scheme is approved. A negative aspect is that the affordability profile of the segment identified for a particular development changes and in some instance deteriorates over such a prolonged period of time, resulting in developers being forced to remodel the conceptual spatial development plan.

In addition to approval of schemes taking such a long time, end user banks are amending their scoring affordability assessments quarterly, which impacts the initial viability prepared for the buyer.

“This is unfortunate as these undetermined policy changes are not controlled by the developers, so the affordable segment, whilst demand is huge here, would be quite a risky segment to target unless you as a developer have secured your rights and understand how it is that local and provincial government can support your scheme and qualify developments as affordable housing,” said Hassan.

Municipalities’ interpretations of regulations can differ from area to area and some officials, when questioned, do not have definitive answers as to what their decisions might be, which creates further problems. This results in unnecessary delays, which could be avoided if issues were dealt with immediately. Land use and environmental understanding could be better than what it is now and new developments should be assessed on an area to area basis, rather than a general plan for all as the profile of the opportunity being applied for is never the same, said Hassan.

Another challenge for many developers is finding land that is already zoned and would be viable for an affordable housing project. The problem with many areas within public transportation nodes (which is where affordable housing is most needed) is that they are already overpopulated, and the informal sector is the one that suffers the consequences of inflation, increased building costs and exorbitant prices of land, he said.

Those who live in areas such as Mitchells Plain live there not as a choice but more out of necessity and they spend large amounts of their monthly earnings on public transport. However, if there is an opportunity created in other areas most would consider moving. The problem is that in the R3 500 to R15 000 income segment there is very little product to offer in the southern suburbs (where a large portion of their employment opportunities lie).

“We at Asrin believe it is pointless bringing a product to the market that is out-priced and cannot fill the need. And while many will say, “build upwards” on a smaller pocket of land available, even building a multi-storey building can turn out units that are incredibly expensive to produce because the higher you go the more expensive, in terms of structure, it becomes to build that way,” he said.

Banks are generally risk averse and it rests on developers to go through a lengthy due diligence process and all the pre-emptive measures on their behalf in order to get finance approved for projects and it is becoming more difficult to get the necessary funding, said Hassan.

“The private sector can be a large contributor to the struggling economy. Boosting the GDP growth to a healthy figure of 5% could be achievable if manufacturing and construction were able to contribute more than what they are doing now. This can only be achieved if all the parties were able to work together as one cohesive body than the disjointed way it is now,” he said.