Where are the Housing Sector Gaps in South Africa?
There were roughly 52.98 million people living in South Africa in 2013 according to estimates by the South African government. That equates to a lot of people with different housing needs, from students and first-time buyers to people who cannot afford housing and gap housing. Looking at the different housing sectors in the real estate industry, where is there a demand that is not currently being met?
“One of the remaining problem areas is that many owners of homes in the historical townships still do not have title deeds”
Student Housing in South Africa
While many universities offer accommodation to new and existing students, this is often based on need and there is normally more need than actual housing.
“Universities and technikons, i.e. tertiary institutions, are growing their numbers of students exponentially and, as a consequence, accommodation for these students is under pressure. It is no coincidence that university towns, such as Stellenbosch for example, are some of the best performers in the South African residential property market. And with the number of students set to rise yearly and new universities being built, this need for student housing will continue.”
-Dr Andrew Golding, CEO Pam Golding Properties
Investing in Student Housing
But is it worth investing in student housing? Could this be why there is such a need for this particular type of housing?
“There will always be a need for student housing. While universities such as UCT are active and aggressive in finding their own buildings to use as student accommodation, they are trying to find their own land to develop and their limitations are the funding, procurement and investor base for this. There is, therefore, a shortage in all the provinces in South Africa. The problem from an investor point of view with regards to student accommodation is that it becomes a purpose-bound building. The layout needs to be different from the traditional apartment block as single bedroom/bachelor units are required. There are companies specialising in this type of accommodation, where they convert older buildings into student rooms and run the rental pool and manage the building. They would have a lease agreement with the universities and manage the rentals. The returns on these units are very good, but the obligations on the leases here are much more than normal renting, such as higher security, high speed Internet connections, contract cleaning, etc. Investors in this type of accommodation are usually getting 8% to 9% return.”
-Michael Bauer, GM, IHFM
While returns may not be as high as in other areas of housing, with a big need for accommodation, this is one sector of the property market that sees steady returns and will always be in demand.
A New Class of Property Buyers
Looking at housing in South Africa and the millions of people the property industry currently serves, there is one subset that remains a grey area – those who have property, but don’t have actual ownership proof.
“One of the remaining problem areas is that many owners of homes in the historical townships still do not have title deeds. This is something that needs to be addressed. Obviously, there needs to be some proof provided of such ownership, but it is vital that, if proven, these owners are given title deeds.”
By obtaining title deeds these homeowners would be able to enter the property market and start transacting. This could act as a springboard, allowing more people to enter the property market. Homeowners could sell their property to people who cannot afford high property prices and buy better homes, creating a whole new class of property buyers and sellers.
South African Low Income Housing
“Most sectors of the housing market are being addressed where it make sense for the private sector to develop and invest. This applies to both sale and rental developments across all spheres, including retirement, gap and students. This would apply for earnings levels from about R6 000 upward in rental and about R8 000 in sales. The problem we face is a desperate shortage of housing in the levels below that. The financial models don’t work for the private sector or their bank funders, and council in particular and government have failed in this area of housing provision. This is exacerbated by high council service charges that negatively impact on affordability.”
-Renney Plitt, MD, Afcho
This sector of the population remains hugely underserved and is one of the largest in South Africa. There are millions of people who live in townships or illegally built structures on land because they simply cannot afford housing, or live in dilapidated buildings as they cannot afford high rents. While the government has, up to a point, attempted to cater for these individuals, it has largely failed to supply adequate housing to the majority.
“A critical problem remains access to finance; the lending criteria is still too tight and while now is an opportune time to buy, this is simply not happening in many instances as buyers are unable to access finance. Another problem relates to the deposit requirements for first-time buyers. What often happens is that in an attempt to secure their own home, first-time buyers will take out a personal loan to finance their deposit at a higher interest rate than the bond rate; something that just serves to put people further into debt. The sector could be improved with active participation from government into public/private partnerships, making more land available within high demand nodes, expediting the rezoning and plan approval process with local authorities, and simplifying the application process in terms of state housing subsidies. The private sector has the technical expertise to deliver affordable housing projects, however it would require the assistance of government in terms of funding or considering development proposals where government realises the land price upon completion of the development.”
-Shiraaz Hassan, Commercial Director, Asrin
Retirement Housing in South Africa
Retirement housing is another sector that urgently needs to be addressed. The number of elderly far outranks the amount of housing provided for them.
“In the lower and lower-middle income brackets, this is where there is lack of supply, and this needs to be addressed soon. This is possibly the next major problem that government needs to address as providing retirement housing is not enough. There has to be the follow-up care, food, nursing and communal facilities available. As the economy continues apace and the next generation comes through, there will be a serious need for decent retirement homes at the prices that lower income earners can afford. The majority of these people move in with their children.”
Retirement housing, much like student housing, is not as simple as buying and selling, and requires more in-depth knowledge, but one model that seems to perform very well is retirement villages, much like gated communities for the elderly, which provide care and expertise.
“There is a serious demand for retirement housing in Gauteng as many homeowners are 60+ and the demands of standard residential housing are becoming more onerous, such as security, maintenance and medical facilities. The costs keep rising, whereas generally in schemes, the costs come down as they are shared by many.”
-Bryan Biehler, MD, Huizemark
This still remains the most sought after property in real estate. With crime still a major issue for many South Africans, gated communities and lock up and go structures remain the most popular and in need.
“High density and communal housing where the focus is on a lock up and go lifestyle, focusing on security, low maintenance and easy access to transport routes and places of work, is one of the most popular in South Africa. People want to live, work and play close to their place of residence. Traffic flows, time travelling and costs are becoming bigger influencers of buying motivation, which will see this type of housing in demand.”
Perhaps there is an opportunity to see more group housing complexes being built that would not only service the need for lock up and go properties, but could also be used for affordable housing and student housing. This is where developers and investors need to work together to create multipurpose housing complexes that cater to a variety of needs in the housing market.
The gaps in the housing market are quite clear. There is a need and demand for student housing, which will always be there and will only continue to grow, and there needs to be more involvement from the government to ease the demand for low income housing. Retirement housing has seen an increase in demand and this is an opportunity for investors, along with group housing complexes that would service a variety of the housing market. With the demand set to grow, there are exciting and interesting opportunities available for savvy developers.
Words: Angelique Redmond