By Vivian Warby
Tired of âempty promisesâ, and being relegated to the outskirts of the countryâs working systems, township property micro-developers this week have said they are tired of fighting for a seat at âthe tableâ.
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 Ramaphosaâs 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.
His address, however, fell short of mentioning the work that micro-developers are doing â building affordable rental units and addressing the countryâs affordable housing crisis.
Economist working in the market, Professor Francois Viruly, says this sector can no longer be overlooked. âFor real social change in the country the two â construction of infrastructure and micro-developments â have to work hand-in-hand.â
Thirty years after democracy, and 20 years since micro-developments began emerging in the townships â first as backyard shacks and now as sophisticated apartments â a turning (but not yet a tipping) point is taking place in the sector with township property entrepreneurs at the forefront of this new big shift in the property market.
If national government and banks came on board, say those on the ground, small-scale property developers in the townships could tip this sector into a working market unlocking many billions of rands for entrepreneurs, communities and â through rates and taxes â for local governments to enable them to provide more services to the areas.
With buy-in from where it matters it would also 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's (DAG) programme manager Zama Mgwatyu and Chuma Giyose, DAG project co-ordinator, micro-developers are addressing âcrucial 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 moreâ.
All this, despite facing challenges in formal recognition by national government with micro-developers left out of all conversations by the president and his ministers in GNU, and with virtually no support from traditional financial institutions.
âFinance is the oxygen for the sector - without it small-scale developers in SA will never grow to their full potentialâŚall parties including government need to develop financial products that would make financing the sector possible â or we are going nowhere,â says Viruly.
âSadly,â says Vusi Vokwana, founder of Kasi Catalyst, which helps drive and facilitate outside big investment in the townships, âit is easier in South Africa to put a six-man cash-in-transit heist team together to access âfundingâ than it is to walk into a financial institution ⌠and get funding.â
The sector has been bootstrapping itself for over 20 years creating an affordable rental market but unable to take it to the next level because of various reasons, sometimes non-compliance because of unnecessary red tape that does not talk to the sector, other times the lack of financing opportunities.
What began as âbackyardingâ with a wendy house or a shack constructed on someoneâs backyard for rent has turned into higher-end apartments built to house professionals battling to find affordable accommodation in a city with an affordable housing crisis.
These professionals are willing to pay anything up to R4000 for an apartment with all the facilities. This figure has been increasing over the years as more sophisticated apartments have emerged.
Risk are there: it is difficult to get a title deed, it is difficult to rezone a property, it costs money to draw up plans, it costs money to get construction going, to pay outstanding rates and taxes and to get compliant. And these developers do not have deep pockets.
THRIVING
âAnd yet,â says Vokwana, âwe 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.
âMost 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.â
Viruly adds: âWe canât continue having a systems that only work for 20% of the property market. We need a system that works for the rest of the property market where homes are under R1.2m. We need a market that functions as low on the property ladder as possible.â
Brian Bango, chairman of the newly formed Township Developers Forum, a top micro-developer himself, who at one stage stayed with his domestic worker mother in a wendy house in someoneâs backyard and intimately knows the concept of how the new micro-developments can restore dignity and create generational wealth, says the market, in its rands worth, can compete with the likes of the former white townships of the city such as Constantia.
He says the biggest worry for micro-developers is to break ground and build. The red tape of getting title deeds, rezoning and other permissions is so cumbersome and they do not have deep pockets. âWith 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 themâ.
âDag 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. 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.â
Viruly is clear that âwe need to start by reducing the regulatory risk and associated costs of the development processâŚred tape is a considerable constraint supply sideâ.
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 that can tangibly assist this property sector by cutting cumbersome red tape and bureaucracy and providing concrete assistance.
Yes, says Mgwatyu, things are changing. âWhat we had happening a few years back is you would have officials throwing rules into our faces to say they canât talk to us because we were outside the rules. Through hard work we managed to get champions form inside the municipality through one-on-one engagements and this is bearing fruit.â 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 Townâs Small Scale Rental Unit Mayoral Priority Programme, says it is âa 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.â
LOCAL GOVERNMENT STEPS UP
Cityâs deputy mayor and mayoral committee member for spatial planning and environment, Eddie Andrews adds: âVery importantly, as the world changes around us, we also need to adapt our Municipal Planning By-law to address theseâŚ
âThere 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.â
Ramaphosa in his recent address also spoke of addressing asset poverty.
One of the best ways to create asset wealth is through property â the built environment, says Viruly.
âMany South Africans donât own any assets â at the moment much of our property canât be realised or unleashed and is therefore dead capital. Thatâs why getting title deeds as per the Presidentâs speech is important so that a house is both a shelter and an economic benefit.
âThe single biggest asset for many is their house, they need to unleash those assets, and create asset wealth.â
WHY NOW?
It seems a number of factors are playing into the reason why there is some attention on small-scale township property developers at the moment not least of all the hard work by individuals and organisations on the ground to get the sector recognised.
But one also canât overlook the high cost of living and increasing poverty which is creating entrepreneurs out of necessity, says Nomfundo Molemohi, uMaStandi portfolio manager â 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 some data to show that micro-developers make it work, showing just how lucrative this market is.
âThis sector has assets the banks canât 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.
âIt 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.â
BANKS NEED NEW PRODUCTS
Banks however have mostly shut their door to micro-developers directly, providing - in the most - 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 âto 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.
âTheyâve done this before on other things â why canât 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.
âWe are saying: come, there is a seat at our table waiting for the banks â we are willing to do what it takesâ.
Lusanda Netshitenzhe, 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 âfor 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 â there is data for the banks to see this.â
OTHER ALTERNATIVES
Another finance model by Bitprop is also available to this market.
Bitpropâs Dylan Walls says when they entered the market it was prolific but very informal and âas a new financier we looked at ways to formalise it through providing the finance via our modelâ.
Bitprop gets investment from High Net Worth Individuals mostly foreign â âwe donât have many South African HNWI investingâ. Bitprop helps build and manage the micro apartments for a percentage of the rent for a 10-year period but does not take ownership and itâs model has proven successful.
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.
âWhat 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.
âOutside, where these systems donât work â where credit history is non-exist or compromised, it is almost impossible to access any financing or to get support to uplift yourself.
âWhere systems donât work alternative systems and programmes will emerge, people make a plan. New systems and functioning systems emerge.
âWithout a doubt we need new ways of doing thingsâŚ
âFinancial institutions need both data and systems to get funds to this market to make the currently invisible market visible and accessible to formal capitalâŚthis is why Empowa has developed technology to build this data which shows just how viable and scalable this market is.
âA backyard rental is probably the best small business you can create â it is almost risk free â and yet no one can access real capital to make it happen.
âYou 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.â
The final word goes to Mgwatyu: âThere are plenty of seats at our table. Government, banks, locals, come sit, letâs talk and make this asset class work.â
* VIvian Warby is a property and environment writer and editor..
This article first appeared in the Weekend Argus