Cape Property July 2024 - Weekend Argus

Window of opportunity to open property market

A call to join micro-developers who are unlocking asset wealth via property

VIVIAN WARBY

TIRED of “empty promises”, and being relegated to the outskirts of the country’s working systems, township property micro-developers this week have said they are tired of fighting for a seat at “the table”. Instead, they called on government, banks and other players to come to their table, on the ground where change is happening, to work out ways to unlock the market.

This follows President Cyril Ramaphosa’s first address since the new government of national unity (GNU) earlier this month, in which he promised to improve infrastructure in the country, saying he would turn it into a construction site. But his address fell short of mentioning the work that micro-developers are doing – building affordable rental units and addressing the country’s affordable housing crisis.

An economist working in the market, Professor Francois Viruly, says the sector can no longer be overlooked. “For real social change in the country, the two –construction of infrastructure and micro-developments – have to work hand-in-hand.”

Thirty years after democracy and 20 years since microdevelopments began emerging in townships – first as backyard shacks and now as sophisticated apartments – a turning (but not yet tipping) point is taking place in the sector, with township property entrepreneurs at the forefront of the new big shift in the market.

If the national government and banks came on board, say those on the ground, smallscale property developers in the

In essence, says Development Action Group (Dag) programme manager Zama Mgwatyu and project co-ordinator Chuma Giyose, micro-developers are addressing “crucial societal needs”. “We tick all the boxes that national government is trying to tick, from poverty alleviation to job creation, to creating asset wealth, safety and security plus more”. All this despite facing challenges in being recognised by the national government, microdevelopers being left out of all conversations by the president and his ministers in the GNU and virtually no support from traditional financial institutions.

townships could tip the sector into a working market, unlocking billions of rand for entrepreneurs, communities and, through rates and taxes, enable local governments to provide more services to the areas. Buy-in from where it matters would lessen the affordable housing crisis and provide an opportunity to create true black empowerment, asset and generational wealth, safety, security and jobs.

Ticking all the boxes

In essence, says Development Action Group (Dag) programme manager Zama Mgwatyu and project co-ordinator Chuma Giyose, micro-developers are addressing “crucial societal needs”. “We tick all the boxes that national government is trying to tick, from poverty alleviation to job creation, to creating asset wealth, safety and security plus more”. All this despite facing challenges in being recognised by the national government, microdevelopers being left out of all conversations by the president and his ministers in the GNU and virtually no support from traditional financial institutions.

“Finance is the oxygen for the sector. Without it, small-scale developers in SA will never grow to their full potential … All parties, including the government, need to create, develop financial products that would make financing the sector possible – or we are going nowhere,” says Viruly.

“Sadly,” says Vusi Vokwana,

the founder of Kasi Catalyst, which helps drive and facilitate outside big investment in the townships, “it is easier in South Africa to put a six-man cash-intransit heist team together to access ‘funding’ than it is to walk into a financial institution … and get funding.”

The sector has been bootstrapping itself for more than 20 years, creating an affordable rental market but unable to take it to the next level because of various reasons – sometimes, it’s noncompliance because of unnecessary red tape that does not talk to the sector and, other times, the lack of financing opportunities.

What began as “backyarding” with a wendy house or a shack constructed on someone’s backyard for rent has turned into higher-end flats built to house professionals battling to find affordable accommodation in a city in an affordable-housing crisis. The professionals are willing to pay anything up to R4 000 for a flat and its facilities. The figure has been increasing over the years as more sophisticated flats have emerged.

Risk are there: it is difficult to get a title deed and rezone a property, it costs money to draw up plans, get construction going, to pay outstanding rates and taxes and get compliant. And the developers do not have deep pockets.

Thriving

“And yet,” says Vokwana,

“we thrive …we, township entrepreneurs, are used to all the declines, the setbacks, the obstacles and barriers because, ultimately, we were raised by people who knew how to circumvent the system.

“Most of us were raised in a system that was not built for us, so, we expect these misperceptions, we expect doors not to be opened for us.”

Viruly adds: “We can’t continue having a systems that work for only 20% of the property market. We need a system that works for the rest of the property market where homes are under R1.2 million. We need a market that functions as low on the property ladder as possible.”

Brian Bango, the chairperson of the newly formed Township Developers Forum, a top microdeveloper himself, who, at one stage, lived with his domestic worker mother in a wendy house in someone’s backyard and intimately knows the concept of how the new micro-developments can restore dignity and create generational wealth, says the market, in its rand worth, can compete with the likes of the former white townships of the city, such as Constantia.

He says micro-developers’ biggest worry is to break ground and build. The red tape of getting title deeds, rezoning and other permissions is cumbersome and they do not have deep pockets.

“With TDF, there is a lot of education taking place to show micro-developers that being compliant opens the asset for the long term, for the next generation, and developers want to be compliant to create a true asset that works for them.

Changes are happening

“Dag and others got a working group of us to sit with the city, to get them to see what we were trying to do, to ask them to make a new set of rules that spoke to our sector. We said: ‘The ball is in your court,’ and it seems they have listened (see story P2). But we know so much more needs to be done to make sure this sector starts working and that property becomes an asset that actually provides not only a shelter but a way for us to make money.”

Viruly is clear that “we need to start by reducing the regulatory risk and associated costs of the development process … Red tape is a considerable constraint supply side”.

Changes are happening

The City of Cape Town is certainly moving from its old thinking of rules and regulations, to implementing possible by-law changes that highlight a bottom-up approach and can assist the property sector by cutting cumbersome red tape and bureaucracy and providing concrete assistance.

Yes, says Mgwatyu, things are changing. “What we had happening a few years back is you would have officials throwing rules into our faces to say they can’t talk to us because we were outside the rules. Through hard work, we managed to get champions from inside the municipality through one-on-one engagements and this is bearing fruit.” He describes it as a learning process on both sides.

David Gardner, the team leader of the Programme Management Unit of the City of Cape Town’s Small Scale Rental Unit Mayoral Priority Programme, says it is “a complete change of mindset of municipalities moving from planning and controlling to supporting, guiding and facilitating … it starts with progressive leadership supported by brave and innovative officials who are willing to look at what it has to do to change”.

David Gardner, the team leader of the Programme Management Unit of the City of Cape Town’s Small Scale Rental Unit Mayoral Priority Programme, says it is “a complete change of mindset of municipalities moving from planning and controlling to supporting, guiding and facilitating … it starts with progressive leadership supported by brave and innovative officials who are willing to look at what it has to do to change”.

Local government steps up Deputy mayor and mayoral

committee member for spatial planning and environment,Eddie Andrews adds: “Very importantly, as the world changes around us, we also need to adapt our Municipal Planning By-law to address these … There is a huge demand for affordable rental accommodation in Cape Town and, this time around, we are proposing additions to the by-law to stimulate development in this market in areas where the need is greatest.”

In his recent address, Ramaphosa also spoke of addressing asset poverty.

One of the best ways to create asset wealth is through property –the built environment, says Viruly.

“Many South Africans don’t own any assets – at the moment much of our property can’t be realised or unleashed and is, therefore, dead capital. That’s why getting title deeds, as per the president’s, speech is important so that a house is both a shelter and an economic benefit.

“The single biggest asset for many is their house; they need to unleash those assets, and create asset wealth.”

Why now?

It seems several factors are playing into the reason why smallscale township property developers are getting recognition, not least of all the hard work by individuals and organisations on the ground.

But one also can’t overlook the high cost of living and increasing poverty which is creating entrepreneurs out of necessity, says Nomfundo Molemohi, uMaStandi portfolio manager, Eastern and Western Cape.

uMaStandi is one of the property financing companies for micro-developers to emerge in the landscape. It provides commercial mortgage finance, training, mentorship and guidance to property entrepreneurs wanting to build quality, compliant and sustainable income-producing rental accommodation in townships. They offer loans and have data to show that microdevelopers make it work, showing

“This sector has assets the banks can’t recognise which means that they cannot unlock the equity. We need to de-risk the area. This market is exploding. People are enterprising by necessity and they need to find an alternative means of making income.

“Others are gainfully employed and starting to realise they need to invest in long-term assets for future generational wealth. It is not easy, but black families are beginning to have conversations about assets more and more. Even those who no longer live in the township. They realise it is a good business opportunity to create property assets in these areas.”

Banks need new products

Banks, however, have mostly shut their door on microdevelopers, providing only a 20-year mortgage package to a sector who are part of a more informal work market, much like the gig economy.

Mgwatyu says the banks need “to get out of their boardrooms, get their hands on the ground, so that they can better understand what type of packages are suitable for this sector.

“They’ve done this before on other things. Why can’t they have packages that suit this sector … not a 20-year mortgage package only. Some banks are not strangers to the informal space at all.

“We are saying: ‘Come, there is a seat at our table waiting for the banks – we are willing to do what it takes.’”

Lusanda Netshitenzhe, the CEO of TUHF21, a not-for-profit, property financier that has pioneered and scaled financial products and solutions that support building rental entrepreneurs in townships, says: “For decades, townships have been kept on the outskirts of broader economic discussions, often considered too volatile or uncertain for traditional investors. But what I have seen in the work we do tells a different story that is full of potential and opportunity – there is data for the banks to see this.”

Bitprop’s Dylan Walls says that when they entered the market it was prolific but informal and “as a new financier we looked at ways to formalise it through providing the finance via our model”. Bitprop gets investment from High Net Worth Individuals, mostly foreign.

“We don’t have many South African HNWI investing.” Bitprop helps build and manage the micro apartments for a percentage of the rent for 10 years but does not take ownership and its model has proven successful.

The co-founder of Empowa, a company that goes beyond our borders and addresses the global housing shortage through its finance model, Glen Jordan, initially began his journey with Cape Town micro-developers.

“What I found was that banks were trying to impose rules and regulations that come from colonial thinking. They have rules and regulations in the financial sector that are geared for the Industrial Age and for the West. They work brilliantly if you get a salary which you can declare and have good credit to show.

“Outside, where these systems don’t work – where credit history

“Where systems don’t work alternative systems and programmes will emerge, people make a plan. New systems and functioning systems emerge.

“Without a doubt, we need new ways of doing things … Financial institutions need both data and systems to get funds to this market to make the currently invisible market visible and accessible to formal capital … This is why Empowa has developed technology to build this data which shows just how viable and scalable this market is.

“A backyard rental is probably the best small business you can create – it is almost risk free – and yet no one can access real capital to make it happen.

“You may ask: Why does the micro-developer work? Why are backyard rental payments data significantly higher than national average? For many it is because of the proximity to the landlord … these tenants are not nameless faces.”

The final word goes to Mgwatyu: “There are plenty of seats at our table. Government, banks, locals, come sit, let’s talk and make this asset class work.”

MICRO-DEVELOPER Brian Bango, chairman of the Township Developers Forum, says there is a strong drive to be compliant and make the system work. Picture taken at one of his sites. | ISTENA BUILDING SOLUTIONS