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Urbanisation drives demand for affordable housing in the Eastern Cape

Letlatsa Lekhelebana

The Eastern Cape’s major metros are seeing an influx of people from surrounding rural areas driven by access to tertiary education and the search for employment opportunities. Although the urbanisation trends are not unique to the province, its metros are particularly understocked to meet the high demand for affordable housing, according to Letlatsa Lekhelebana, Senior Portfolio Manager and Funeka Ndalasi, Portfolio Manager at TUHF in the Eastern Cape.

The opportunities for property entrepreneurs are unmistakable, despite a challenging property market,” says Lekhelebana. “The demand for student accommodation is high, particularly near the University of Fort Hare, Walter Sisulu University and Nelson Mandela University, while near-city areas like Sydenham, Sidwell, Richmond Hill and North End near the Gqeberha CBD, are attractive to those working in these cities. The challenge in meeting these demands lies in insufficient available building stock for conversion. We have seen much the same activity and challenges in areas such as Southernwood, Belgravia, and Quigney in East London.”

While there are plenty of properties in the Eastern Cape’s metros that are well-suited for densification and refurbishment, property owners are often unwilling to sell. “Many properties in these high-demand areas are not in great shape, but tenants are willing to rent the rooms because there are so few alternatives, and so they continue to generate an income for the property’s owner,” says Ndalasi.

The fact that tenants are so willing to pay rent for rooms in buildings that are often not well-maintained and lacking in proper amenities – like private bathrooms – speaks to the degree of demand for affordable rentals. Negotiating the sale of a property can therefore be challenging, but also well worth the effort.

To add to the challenge, administration related to property sales and refurbishments also tend to be slow. “Unlike the Western cape, where there has recently been a renewed focus on affordable housing, the Eastern Cape still faces some local governance instability that detracts from local municipalities’ focus on this market,” Lekhelebana explains. “Building plan approvals take time, and approval requirements can be outdated, so that interested property entrepreneurs face related cost challenges before they’ve even begun to build.”

Yet despite these challenges, TUHF is committed to supporting property entrepreneurs in the Eastern Cape. “We see the potential for densification that provides quality affordable rentals to a market that desperately needs it,” Lekhelebana says, “and we work with property entrepreneurs who share our passion and that have the patience and grit to overcome the challenges.”

A thorough feasibility assessment is key when selecting a property to refurbish and designing the new building to maximise income potential. “Purchasing the right property at the right price is an important starting point,” says Ndalasi. “Property owners who are earning an income from a rundown property may overestimate its value. In addition to the purchase price, understanding what your total investment will amount to, including the costs of refurbishment and servicing debt, is critical.”

TUHF works with its clients to understand these costs. “We want our clients to be able to generate an income from their investments as soon as possible, so in addition to understanding the costs involved we also offer guidance in the final configuration and rental potential to round out a thorough feasibility study,” Ndalasi continues.

Finally, understanding the surrounding area in terms of likely tenants, and what their needs will be, is necessary to inform the design of the project. “If you’re aiming to provide affordable rental housing in an area that attracts young families, for example, you will need to provide bigger units with more bedrooms than you would for one-person households,” Ndalasi explains.

The Eastern Cape is attracting a lot of interest from potential investors responding to the demand for quality rental housing and the need for urban densification near places of work. TUHF has successfully worked with several property entrepreneurs in these areas to deal with the challenges, ranging from obtaining plan approvals to removing squatters living in dilapidated properties. Although the property environment is not an easy one to navigate, it is worthwhile.

It’s true that the Eastern Cape’s property market is challenging in many ways,” says Lekhelebana. “But these challenges are worth taking on. The demand for affordable housing is such that, for property entrepreneurs offering quality alternatives, attracting good tenants, and generating a profit is more than possible.”

TUHF has seen good growth in its Eastern Cape business as property entrepreneurs respond to the increasing demand – not only for affordable rental housing, but for better quality rental housing as well. With patience and grit, the rewards of getting involved in the Eastern Cape’s affordable housing market can pay dividends.