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
    • 17 Nov 2017
      FWJK has announced the launch of its latest residential brand, the Lil’ Apple, which will be launched simultaneously in two developments in Cape Town and Umhlanga totaling 600 apartments. The Lil’ Apple is set to be a brand of FWJK’s New York style apartments which will be rolled out nationally.
    • 17 Nov 2017
      It’s been a tumultuous year on many fronts, with socio-political uncertainty setting the tone for much of South Africa’s economic activity yet despite this and seemingly counter-intuitively, the residential property market has held up well.
    • 17 Nov 2017
      The EAAB (the Estate Agency Affairs Board) recently claimed that around 50,000 illegal estate agents could currently be operating illegally.
    • 16 Nov 2017
      Penthouses are synonymous with New York – characterised by high-rise living that is decidedly luxurious and spacious. While exclusivity comes at a price, you can still create a “penthouse” look and feel in your existing apartment or even the upstairs bedroom of a double storey house with some clever design changes and styling touches.
    • 16 Nov 2017
      The area has long been popular with kite surfers and, with escalating property prices in Cape Town itself, is increasingly in demand with home owners who work in town, but are looking to invest in more affordable properties.
    • 16 Nov 2017
      Cape Town’s popularity as a world-class tourist destination has resulted in a spike in the number of homes available for holiday lets and fuelled investor demand for sectional title units with short term rental potential.
    • 15 Nov 2017
      Sappi, one of South Africa’s oldest global companies and a leading global supplier of sustainable woodfibre products, has moved its global and regional headquarters to a new site on the corner of Oxford and 14th Avenue in Rosebank.
    • 15 Nov 2017
      There’s an old saying in real estate that you should seek to make a profit when you buy, not only when you sell – and a large part of succeeding at that endeavour is buying a home in an area with desirable features that will enhance the resale value of your property.
    Subscribe to the MyProperty Newsletter

    Last Name  
    Email Address  
    Email Frequency
    Share this Page

    For Sale Property
    Rental Property
    More Options
    Connect with us