Affordable housing industry will defy economic slump

fi-vines-sa-good-newsDespite South Africa’s economic turbulence, opportunities continue to exist. The affordable property industry is one of them. For the past years, the housing demand among low and mid-income earners has been outstripping the supply. This makes it one of the most interesting segments of the South African property sector, local industry leaders say.

Recently released figures by Statistics South Africa have shown that, in the first three months of 2016, the country’s Gross Domestic Product (GDP) declined by an annualised 1.2%, compared to a 0.4% growth over the last quarter of 2015. Culprits include job losses and a shrinking farming and mining output. There was some positive news too: the building sector for instance, saw its GDP contributions increase by 0.5%.

Gary Power, marketing director of Power Developments, says. “The growth is no surprise. We have been developing affordable housing projects as usual, despite some tough macro-economic conditions with a spike from an affordable or Gap housing point of view,” he says, referring to the residential property sector that caters for individuals who earn too much to qualify for a government-subsidized home and too little to access the open bonded market.

Government is trying to move away from the “hand out mentality” related to free government housing known as BNG or Breaking New Grounds (previously RDP). Government is trying to move towards FLISP (Financially Linked Individual Subsidy Programme, and GAP housing for people earning above the BNG threshold of R3500 and earning a maximum of R15000 household income per month. The reality however is that purchasers are only able to afford bonds if they earn R10 000 or more per month. This leaves a GAP in the market between the R3500 & R10000 income earners.

“People who fall in the Gap category typically live in households with earnings between R3500 and R15000 per month. The demand for affordable homes has not declined – on the contrary it is set to only increase over the next few years.”

“There are not a lot of new homes available in the R300 000 – R650 000 price range, whilst the demand is certainly there,” he continues. “People who are spending R4200+ per month on rent often want to own their own house, but they don’t have a lot of choice or struggle to access bank finance. Prospecting home owners who can’t apply for government-subsidised housing because their income is too high, and those who don’t earn enough to buy a bonded home are stuck between a rock and a hard place.”

This is what makes the South African Gap housing sector an interesting opportunity, particularly in the light of the economic slowdown. “This is the market in South Africa that has the greatest potential to grow over the next few years, particularly when you are delivering a quality product that offers homeowners a bit more than others,” Power concludes.

“Our philosophy is to give people a bit more for the cheapest price. If you don’t do that, your buyers will have to loan more money, which increases their risk of losing the roof over the head when they can’t afford the monthly bond payments,” he says. “From a business point of view we can do this because we are dealing with huge volumes. This means we can negotiate on good pricing with the suppliers of our extractor fans, solar geysers, cupboards, boundary fences, burglar bars and gates, and alarm systems, which are fitted standard.”

Power Developments’ most recent housing project, The Vines in Eerste rivier, is a good example, he says. “We yet have to officially launch the development, but the response has been unparalleled.” The Vines will include a combination of GAP and Open Market homes. At this stage purchasers earning R12000 or more are able to afford the homes (subject to deposits available and credit history).

The interest in The Vines, which comprises 83 free-standing homes in the R426 000 – R675 000 price range, reflects the situation in 2012 when Power Developments launched the award winning Pelican Park. Situated outside Muizenberg, the Western Cape’s largest Integrated Residential development comprises 3200 homes, including 2024 government-subsidised units, 760 Gap houses, and 360 bonded homes.

“The Gap houses in particular were extremely popular. At some stage during the construction period, we had 60 sales per month,” says Power. “It’s clear that this is what people want, and need right now.”