Investors should diversify assets to ride the affordable housing wave

Institutional investors should look to the robust return opportunities provided by relatively untraditional asset classes such as affordable housing funds, which continue to expand as a result of the unmet high demand for homes, especially in emerging economies.
The affordable housing sector is rapidly growing in South Africa and is proving its mettle in terms of solid track records and transparency, coupled with superior returns.
Soula Proxenos, Managing Partner at International Housing Solutions, the global private equity provider who pioneered the large-scale investment in the development of affordable housing in South Africa, says investors should cast their vision wider in search of greater returns in industries that have proven themselves over a period of time.
“With international investors now starting to invest in Africa, they are bringing with them the knowledge that affordable housing is a proven asset class in emerged markets,” Proxenos says.
As noted at the recent Investment Property Databank conference, property has emerged as the warrior asset class, moving into the investment mainstream. Statistics show that investor appetite for various segments of real estate strategies (low risk to high risk) has grown about 20% overall globally since January 2011.
While the attraction applies to property in general, the niche sector of the market - the provision of affordable housing - makes even more investment sense.
“There exists a tremendous backlog of affordable homes in sub-Saharan Africa, because of the explosive growth of the middle class in the past decade, as well as urbanisation. Investors are right to be cautious, as it requires skilled and experienced operators to mitigate risk; however this hesitance is easily addressed by ensuring due diligence investigations into reputable companies with proven track records.
“Some investors looking for good long term investments are very attracted to property. Some shy away from property because it requires longer term investment, but it remains attractive and the sector has delivered far above par each year over the past decade,” Proxenos notes.
Currently, IHS is in the process of expanding its footprint into sub-Saharan Africa – following the significant success of its first fund, the US$230 million South African Workforce Housing Fund. So far, IHS through this fund has provided financing for over 28 000 units with a combined total value of more than R8.6 billion.
IHS was the first international institutional investor to recognise the potential of developing affordable housing, also called gap housing, in African markets. In doing so, it not only opened up a valuable new sector for its investors, but ensured that thousands of families were able to afford a home of their own and start their journey to wealth creation through property ownership.
The company has now received its first multi-million dollar commitments to its second fund from the National Housing Finance Corporation (NHFC), established in 1996 by the National Department of Human Settlements as a Development Finance Institution, with the principal mandate of broadening and deepening access to affordable housing finance for the low-to-middle income South African households; and IFC, a member of the World Bank. The two committed more than half a billion rand to IHS Fund II.
“We believe it is time for investors to demand their financial managers at least consider the sector as an investment option. By increasing their exposure away from historically favoured but non-performing assets, investors have an opportunity to start seeing real investment performance.
Proxenos says IHS’s investment strategy remains to increase the stock of modestly priced housing, helping to eradicate the huge and growing backlog in sub-Saharan Africa, while offering an investment with great returns. This is a good news story for Africa—evidenced by the growth of the middle class and large scale urbanisation*—however the consequence is a huge deficit in housing stock.  On the continent countries with robust property rights and mortgage markets can address this deficit with private sector investment.
“Our second fund offers an attractive investment opportunity and we believe that it will also have a significant positive social impact as did the SA Workforce Housing Fund. We have so far committed more than US$230 million to ensure the large-scale provision of housing stock in the affordable sector in emerging markets, and have seen superior risk-adjusted returns being achieved with the outlook of potentially doubling investors’ capital.”
* May 2013 UCT/Unilever Institute Report: 4,000,000 & Rising

  Comment on this Article

  Please login to post comments

Post to my facebook wall
Characters remaining

    Latest Property News
    • 24 Apr 2018
      The thing about the property ladder is that at some point in our lives we all have reason to want to climb a rung or two higher. Sometimes, it’s because we’ve outgrown our previous dream home, or because we want to be in a better neighbourhood that’s closer to work or to schools. Sometimes it’s because our circumstances have changed, and we’re taking care of elderly parents or relatives. Sometimes, it’s just because we want a property that reflects the financial status our hard work has won.
    • 20 Apr 2018
      Whenever changes in the political ecosystem of a traditional property market create uncertainty, smart investors begin to look elsewhere for new opportunities. Property experts at IP Global have analysed the trends and crunched the numbers to find new markets to explore in Europe and the United States.
    • 20 Apr 2018
      Energy and water self-sufficiency are increasingly important factors in home buyers’ choice of property – especially in Cape Town where the extreme drought of the past few years has made municipal supply costly as well as uncertain.
    • 19 Apr 2018
      During the last decade, rampant development has progressively transformed Cape Town’s property landscape with densification being the order of the day, but there are still one or two hidden gems like Scarborough which have retained their original character, offering an inimitable lifestyle and an attractive investment opportunity.
    • 19 Apr 2018
      The rental market is a cut-throat sector of the real estate market that waits for nobody. According to Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa, first-time renters need to be fully prepared before they even start the process of looking for a place to rent in order to avoid the disappointment of losing out on their ideal property.
    • 19 Apr 2018
      Choosing to buy your first home instead of continuing to rent is a big decision that will usually take some time to put into action, but the sooner you can save up a sizeable deposit, the closer you will be to reaching your goal.
    • 18 Apr 2018
      Selling your home is no small task and as you will quickly find out, there are a lot of misconceptions about the process. Gerhard van der Linde, Seeff's MD in Pretoria East lists the top 5 misconceptions when you are selling your home.
    • 18 Apr 2018
      The Cape Town municipality is now installing water-management devices at properties that have been non-compliant with the new level 5 water restrictions and there are talks of fines between R5,000 and R10,000 for households that use too much water.
    Subscribe to the MyProperty Newsletter

    Last Name  
    Email Address  
    Email Frequency
    Share this Page

    For Sale Property
    Rental Property
    More Options
    Connect with us