The journey of a microdeveloper
You’re going to need nerves of steel...
DARREN FRANCIS
SOUTH Africa is experiencing a housing crisis and experts are predicting that the population will grow by 75 000 people a year over the next 20 years.
Which leads to the question: where will all the people live?
Unfortunately, it is unlikely that the national government and the private sector will be able to meet the demand, based on future projections.
But in Cape Town, things are a bit different and as a property investor/micro-developer, things are geared to making it better and mechanisms are being put in place by the City of Cape Town to deal with the growth.
As a micro-developer, I believe the aim should be to ensure we contribute meaningfully to ease the housing crisis.
One could argue that it is more expensive to develop land in Cape Town than elsewhere in the country. This might be true to a certain extent, but authorities have been putting measures in place to assist micro-developers like myself.
Recently, I completed a threehouse development in Mitchells Plain and, if you use current building rates, such a development would cost in the region of R3 million. The costs are often a stumbling block but there are subsidies to assist microdevelopers, especially in highly dense areas.
Here are a few useful tips to consider if you are considering becoming a micro-developer:
Fund set up for SME hopefuls
THE City of Cape Town’s Council recently adopted the creation of a Development Charges Fund to support micro-developers building affordable housing in lower income communities.
The fund will subsidise development charges for small-scale rental unit developments to stimulate the affordable housing market and attract investment.
Step 1: Education
This is the most critical step. Mistakes could be extremely costly and lead to catastrophic consequences. You have to conduct thorough research into the area, land acquisition and investment strategies. Books on property and the development process, such as my book, Failing to my Success, where authors detail their journey and experiences, can be a great source.
Step 2: Developing/ creating a business plan or investment proposal
This is essential for any property development venture. It is critical that you outline why, what, where, when and, most importantly, how. Give detailed information on what motivates you and provide potential investors with your goals, target market, budget and timeline. Include detailed financial projections, such as potential costs and expected returns. Your business plan should also cover risk-associated factors and what is needed to obtain the necessary permits and approvals.
not, banks approve loans of up to 60% of the deal. And given the cost of building and so on, this is often a big stumbling block for many wishing to venture into the sector. Ensure you explore various funding options, such as personal savings, bank loans and private investors. Present your business plan to potential lenders or investors to demonstrate the viability of your project.
Step 4: Finding the right property
By now you have heard the saying: location, location, location. This might be true but there are many factors that determine the behaviour of the consumer and finances often play a large role in the behaviour. Make sure you identify a suitable property, as this could be a key factor in the success of the micro property development. Consider factors such as location, market demand and zoning regulations. Use online real estate platforms, real estate agents and networking events to find opportunities.
Step 5: Assembling the team
Step 3: Securing finance
In the South African context, financing vacant land is often difficult and, more often than
As an award-winning property investor, I have made this mistake, especially when starting out. You will have to face a lot of challenges and interview a lot of people to find the right team to suit your
goals, budget and vision. Your project requires a team of skilled professionals. These will include, but are not limited to, an architect, contractor, real estate agent, lawyer and accountant. Each member plays a crucial role in the project, from design and construction to legal compliance and financial management. Collaborating with experienced professionals can help you avoid common pitfalls and ensure the project runs smoothly.
Step 6: Pulling the trigger (execute and let the games begin)
Now that you have gone through months, if not years, of preparation and you have found the team, approvals and finances, it’s time to execute your plan of action. Hold fast because the road ahead is filled with challenges, potholes and unforeseen challenges.
Oversee the construction or renovation process or employ a foreman or project manager. This will help you stay on schedule and within budget. Regularly communicate with your team to address any issues promptly. Communication is vital to the success of your project.
If you are reaching all your milestones and nearing practical completion, make sure you know what you are going to do with your development – selling or renting. You need to know what you are working towards to ensure you maximise your returns.
Darren Francis is an awardwinning micro developer and author of “Failing to my Success”.
“The creation of a Development Charges Fund will unlock new investment for much more affordable housing development far faster than the government can build. This is harnessing the power of private investment to achieve an important public outcome: more affordable accommodation,” said Mayor Geordin Hill-Lewis.
“We are kick-starting this new fund with … R20 million to subsidise qualifying micro-developers on a first-come-first-served basis.
“Subsidies will be available to stimulate the development of … affordable housing in 194 targeted lower income areas. The subsidy will make it easier for micro-developers to invest in the small-scale rental unit market, enabling much more affordable accommodation across Cape Town.
The subsidy covers between 50 to 90% of Development Charges which the City generally uses to pay for bulk services to support new developments, such as roads, stormwater, water, sewerage, public transport and waste removal.
Some of the qualifying criteria:
• The applicant must be a micro-developer, intending to develop between three to 30 units at a site.
• The applicant must provide proof of the submission of building plans to the City for assessment and approval.
• The applicant must confirm that project funding is available before the payment of the development charges from the Development Charges Fund will take place. This is to ensure payments from the DC Fund are prioritised and paid to those developers who are ready to commence with the development. This requirement, however, does not exclude developers to apply for assistance from the fund, it is only a requirement before payment can happen.
The objectives of the fund:
• Stimulate property investments in townships by reducing the entry barriers (including development charges) for micro-developers.
• Attract investors to townships with a suite of financial and other incentives.
• Facilitate the expansion of township businesses and formalisation of township areas.
• Assist with greater compliance with the City’s building plan approval processes.
• Reduce entry barriers for investors in targeted areas.
• Stimulate employment and skills development in the targeted areas.
FAILING To My Success by Darren Francis is available on Amazon.
FRANCIS called this development “Ron’s Place” after his late dad Ronald Francis.
PROJECT manager Angus Crowe played a big role.
Multi-billion rand property hotspots in the Western Cape
Small scale developers taking on housing crisis 1 brick at a time
BY VIVAN WARBY vivian.warby@inl.co.za
ORDINARY South Africansturned-micro-developers in the townships have been hailed as the property heroes of the city, with their ability to curb an impending affordable housing crisis.
The micro-developers began in earnest about 20 years ago to respond to the scarcity of affordable housing by providing low-cost rental stock by either building onto their homes or demolishing their homes and building units to rent out.
A lot of effort is going into trying to get a handle on the magnitude of the developments but, with properties shooting up all over the townships all the time, it’s hard to keep apace.
While no one can say for sure, it is estimated that this is a multibillion-rand property sector that is providing a few million rooms and that figure is growing every year.
In 2018, in research undertaken in this township market by Development Action Group (DAG), an NGO with more than 30 years’ experience in urban governance, housing and community organising, programme manager Zama Mgwatyu dubbed the microdevelopers’ model as Backyarding 2.0 taking backyard shacks to a new level of sophistication with apartments the likes of which can “compete with Constantia”.
The DAG has been instrumental in getting the microdevelopers recognised as a big player in the property sector.
Mgwatyu believes the developers, some informal, have the potential to help solve the country’s housing dilemma and their entrepreneurial spirit is providing work for others in the neighbourhoods.
Added to that, they are putting a lid on land-grabbing by creating homes for those who would otherwise put up a home on any vacant land, says Cynthia Ngxukuma, the former chairperson of the Township Developers Forum of the Western Cape that was set up to formalise the sector and share their stumbling blocks to a broader audience.
Since 1994, the pace of housing delivery in the country has not kept up with the growing demand, resulting in an enormous backlog.
In the Western Cape, official waiting lists say more than 600 000 people are in line for a council house, with more than 350 000 of those in Cape Town.
Added to that, urbanisation is increasing and government subsidised housing delivery is dropping, and that’s one of the problems the micro-developers are solving, says property economist Prof Francois Viruly, who has been working with micro-developers for many years
and also runs workshops with the DAG and others in property entrepreneurship.
“I think the government has a role to play via making land available for this; these small developers have a role to play by building the accommodation,” adds Viruly
While yields of 22% might sound lucrative, it is not for the faint-hearted because there are many barriers to entry, says Chuma Giyose, the project co-ordinator at the DAG.
Two of the major stumbling blocks for micro-developers remain lack of access to land opportunities and lack of access to formal finance. Finance for the developments is incredibly expensive – the developers either cash in their pensions, max out credit cards, take credit at hardware stores or sell their cars, for instance, to get the money to build. Getting the formal banking sector on board is difficult, says Giyose.
Financial institutions are, by nature, conservative and governed by the Credit Act and they have
a difficult time getting into this market,” says Deon van Zyl, the chairperson of the Western Cape Property Development Forum.
“However, if a client is getting a yield of 15 to 22% – well over double what some of the city’s big developers are doing – you should be there,” says Van Zyl.
The City of Cape Town is certainly taking note of microdevelopers who are housing mostly the gap market – those earning between R3 500 and R22 000 –and COCT is implementing strategies over the next few years that will support and “not suffocate” the sector.
Around the microdevelopments in the townships, other industries have emerged, helping jump-start the township economies.
Ngxukuma, who also runs her own property management company, Bukholethu Property Management, says the developments have not only generated income for the homeowners but have also given birth to new enterprises, such as her property management
What is a micro-development?
THE accommodation varies from backyard shacks to bricks and mortar top-quality apartments with high-end finishes.
“We preach build that you can live in,” says Cynthia Ngxukuma, owner of property management company, Bukholethu Property Management.
Their developments include up to 20-plus units, are often
double-storey, sometimes three storeys, and vary in size from about 10m² to about 40m².
Rentals range between R800 and R4500 – already an increase from what it was a few years back.
Some even have braai facilities and laundromats.
In one development, a 24m² micro-flat includes a safe place to park a car and is let for about
R3 500 a month to a nurse. It has a window, its own entrance and is on the top floor of the six-unit development. The inside is painted white and the tenant has a bed, a cupboard and a table. To the side is a bathroom with a toilet, sink and shower and a small kitchenette – pretty similar to the layout of the 20m² apartments selling in the Atlantic
seaboard and the city centre. Some developments have shared amenities and go for less.
Innovation is high with one landlord hiring a “granny” to look after tenants’ children while the tenants went to work.
Renters include professionals such as nurses, teachers, tradesmen, security guards, big retail managers and till operators.
company, and new hardware stores, room rental agents, and grocery sellers.
So big is the need for accommodation in the affordable market, says Ngxukuma, that one advert could have more than 20 calls for viewing within a few hours.
“The next generation of millionaires can be made here, but things need to happen to ensure we can create generational wealth.”
The developers are creating a lot of value, she says, but in many instances, it is dead capital: they sometimes build where they don’t have the title deeds, the don’t always have approved plans, they can’t get a bank to finance them and they can’t get insured, so, ultimately, their capital can’t be realised.
It is also difficult for the city to respond with proper infrastructure because they are under the radar –some not paying rates.
Viruly says: “We just don’t know how big the market is …
DEVELOPMENTS vary in size. | DAG
BUSTLING Litha Park in Khayelitsha 2 is one of the many areas home to micro-developments. | DAG
we can start guessing it … we are really trying even with Google Maps to see what is happening in markets … we can get this number wrong … One thing we know for sure is that ‘the train has left station’ – these developers are developing and nothing is going to stop them, the government is having to play catch-up with them to regulate the market.”
It is important, says Viruly, to note that about 70% of properties on the deeds registry is below R1.2m. “When we talk about the SA property market, we tend to look at top 10 to 20% when, in fact, most of the market is below that.
“Micro-developers are not the side show – they are the real SA property market.”
Van Zyl says: “These guys don’t always do things by the book, and there is certainly a disjunction between the regulatory environment and what they do. What we are seeing is a tale of two cities.
“It is impossible to take a regulatory environment for the formal sector and try impose it on a more informal sector – it does not work big.
“Are they solving the housing problem? Yes they are; the problem is there is no real data because many of them fly under the radar.
“Many of these guys want to get additional funding – if it were not for all the red tape, they would grab the opportunity.”
Van Zyl adds: “Everyone needs to be realistic – in a perfect world it could be a one-size-fits-all …but we don’t live in a perfect world. The informality of the market by default means there are two worlds.”
Ngxukuma says: “We are not the Pam Goldings and Rawsons of the world – we do things differently here. We have systems that govern and that we understand … It is not easy for others to penetrate the market because they don’t understand how we do things – we have our own book.
“These developments are coming up everywhere … people are building with or without plans.
“The law moves too slowly and needs to catch-up with us. Through engagement with the formal sector, I can now encourage my clients to build right. I educate them that they are responsible for the health and safety of their occupants and that if anything happens on their erf, they are responsible … there is a responsibility beyond building and finding tenants … one just has to think of the building disaster in George recently – it has opened many eyes to responsible and formal building.”
The difference between the informal and the formal property sector is something the COCT is sensitive to as it tries to assist the sector to enter the formal economy.
The COCT is juggling many questions, says David Gardner, the team leader of the Programme Management Unit of the City of
Cape Town’s Small Scale Rental Unit Mayoral Priority Programme.
For instance, “how do we change from regulating microdevelopers out of existence to instead, guiding and assisting them through levels of public support so that the sector can become a formal housing submarket that develops housing on scale and assist to fill the gap?”
The developers need support as they are addressing some of the fundamental challenges facing the City of Cape Town, including rapid urbanisation, a shortage of affordable housing and poor economic growth, he says.
It is indeed a pivotal moment requiring a mind shift for both the micro-developers who are informal, in some instances, not regulated and, at times, noncompliant and the COCT which has been a by-the-book regulator.
“It is a big learning curve for all – the government is learning not to be a regulator but a supporter. There has been a huge realisation in the past 10 years that this is a viable system to provide decent affordable rental accommodation and create the most viable business echelon in the country.”
So important is the sector that the COCT recently made smallscale affordable rental Mayoral Priority Programme and the mayor, Geordin Hill-Lewis, is often seen in the areas, visiting and talking to the micro-developers.
Gardner says: “People are creating income opportunities. There are levels to regulations and we need to consider what those levels will be in these areas.”
It is true; the city is thinking more laterally and working hard to change the approach towards the market, including ensuring municipal by-laws are relevant. The results of 10 different work streams within the City, which are working on how to better support and guide the market into an important housing deliverer and city shaper, are being finalised and will be implemented as early as next year.
To ease the path from noncompliance to compliance, something the DAG is striving towards for the sector, the COCT has been amending municipal by-laws to better accommodate micro-developers. A notable development is the implementation of a R20 million subsidy fund to assist developers in paying development charges, a significant financial barrier. The COCT has introduced preapproved, prototype plans for developers. The plans, vetted by various city departments, streamline the approval process, significantly reducing the time and bureaucratic hurdles traditionally involved.
The City recognises the power of the sector to deliver housing and densify and also takes note of its duty to ensure property developments don’t infringe on other’s property rights, health and safety.
Inbound semigration to the Cape has more than doubled
ASK any born and bred Capetonian if they’re feeling the impact of increased semigration to the Western Cape, and they’ll answer with a resounding “yes”. They may say it’s evident in the increased price of properties or the longer queues at popular coffee shops, common trends that were once limited to holiday seasons.
While much anecdotal evidence has been shared about the impact of the rise of semigration in the Western Cape, analysing property data from the province over the past five years illustrates the full extent of the phenomenon.
“Pre-2020, the majority of semigration in South Africa was the result of workers flocking to Gauteng in search of employment opportunities in the City of Gold,” says Gavin Lomberg, the CEO of ooba Home Loans.
“In the five years since, ooba Home Loans data shows a shift to the Western Cape, with inbound semigration (moving to the province) having more than doubled over this period.
“The Western Cape accounted for 29% of our semigration home loan applications in Q1 2024 – up from 14% at the start of 2020.
“In contrast, our statistics show that semigration to Gauteng has declined from a high of 34% in 2019 to 25% in Q1 2024.”
Savvy investors are capitalising on the huge
demand for rentals in the Western Cape by purchasing investment properties at the highest rate seen in the past five years, according to ooba Home Loans data.
“While the majority (66%) of semigration property purchases in the Western Cape are for the purposes of using the property as a main residence, the percentage of investment/rental purchases have been steadily increasing, comprising 30% of Western Cape semigration applications processed in 2023,” says Lomberg.
Conversely, the percentage of semigration holiday home purchases in the province has declined from the peak of 7% in 2020, to 4% at the end of last year.
“In the current high interest rate environment, holiday homes are seen as an expensive luxury. There has also been an increase in foreign buyers snapping up properties in the province’s tourist hot spots, out pricing locals with their stronger purchasing power.”
He says the prospective rental investment returns and longer term capital growth potential in the Western Cape are attracting investment buyers from other provinces.
“With the pandemic now subsided and tourism booming again in the Western Cape, property investors are making the savvy decision to purchase investment properties that can easily be rented out under both short and long-term leases.”
Why the Western Cape?
“Semigration first became a prominent buzzword in 2016 and then featured more prominently in 2020 with the onset of the Covid-19 pandemic,” says Lomberg.
“With work-from-home policies enforced across the country, homeowners began to prioritise lifestyle considerations over proximity to urban hubs, as had previously been the case.”
“Thus, it was somewhat inevitable that the Western Cape would become a rising semigration hot spot, as the province offers a host of lifestyle benefits without having to sacrifice urban conveniences.”
He says that while the lifestyle benefits and urban conveniences have played a large role in driving demand, the main motivator for many semigrants is their quest for better governance and property returns.
“The Western Cape has a track record for well-managed municipalities and higher levels of service delivery than most other provinces. Homebuyers, fed up with issues like water outages and no refuse removal, have recognised this and are voting with their feet by making the move.”
Lomberg says that while the Western Cape is not immune to the major issues facing the country, such as high crime levels and load shedding, residents do have a higher probability of getting the basic services they pay for.
SEMIGRATION is having an impact on property in Cape Town. | VIVIAN WARBY
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