This is according to Soula Proxenos, Managing Partner of International Housing Solutions (IHS) saying that when one takes a bird’s eye view of the affordable property market, a supply and demand mismatch is evident with levels of consumer interest hampered above the R3000 per month mark.
She says overall the demand for housing in the affordable property sector is huge, but access to finance and associated costs are driving consumers to rent rather than buy.
“There are clear bands of affordability in terms of monthly rental or bond repayment levels. There are no current vacancies for the small and cheaper units, but the larger units priced on average from R2800 to R3200, depending on their size and whether furnished or not, are not getting rented as fast as the cheaper smaller units. These units are also renting well but the cheaper units are flying off the shelf like hot cakes”
She says there is huge interest from potential buyers in inner city Johannesburg.
“Unit prices average R350 000 in downtown areas, but accessing end user finance is still a challenge for this market. Affordability becomes a problem for units priced above R450 000 and our research shows unit sales above R500 000 are very slow.”
I H S partners with developers in the provision of affordable housing by injecting equity capital in return for a shareholding. It is already a partner in numerous projects, having invested about R500-million of its much larger South African Workforce Housing Fund. This investment has financed the creation of 17 000 units of new or renovated units. IHS expects to have doubled its investment levels to around R1-billion by next year.
Among its current projects are a partnership with AFHCO to convert the old Greatermans building in downtown Johannesburg into over 400 rental units. Another project is with the Brian Falconer Property Group to develop 2 400 new homes near Carnival City, a third with Calgro M3 Holdings to develop some 6 400 homes in Fleurhof south of Johannesburg and a forth with the Aengus Group to refurbish 1 700 homes in the inner city Johannesburg area. And there are a number of additional projects in the pipeline including a large public private sector partnership in Soweto.
She says defaults in rental payments are relatively low across the board and rental housing demand and rental inflation have not been negatively impacted despite the worldwide recession. But, unemployment and the fear of unemployment was dampening the enthusiasm of both prospective buyers and mortgage financers.
“We remain very positive about South Africa. The 2010 FIFA World Cup exuberance and the worldwide recovery - which will hopefully be more apparent in the new year - is fuelling the bounce back in the overall property market.
“But, in the affordable sector, there is an important balancing act that needs to be managed. On the one hand we have a massive opportunity in terms of the demand for homes and on the other we have the threat of banks’ funding drying up for both end-user and development finance.
“And although interest rates are at historic lows, only limited stock in the affordable price band is currently being constructed.
“Pent-up demand coupled with current low interest rate levels have made existing unit stocks more affordable and attractive, but the lack of new stock is driving up the price.”
The constraining factor all round remains that of end-user finance.
“Mortgage providers have made their credit criteria more exacting and have, until very recently, required large deposits from households that conventionally have little or no savings. In recent weeks the mortgage supply appears to have loosened up a bit, but it is still constrained.”
Proxenos says the time has come for government to encourage financial institutions to introduce fixed rate mortgages for families that qualify at current low interest rates.
“These borrowers might not be able to sustain a 3% or larger increase when interest rates start climbing again and this is preventing them from taking the plunge now while rates are relatively low.
“Fixed rates or a cap on how high interest rates can go are critical for households with less disposable income. These households are most negatively impacted on when interest rates increase and this inevitably leads to foreclosure and bank lending being withdrawn and in return impacts on the ability of developers to produce stock.
“This will make affordable housing remain in a boom–bust cycle instead of a more robust sustainable pattern,” says Proxenos.
