Cape Town’s next property millionaires could come from here
Ordinary South Africans-turned-micro-developers in the townships have been hailed as the property heroes of the city, with their ability to curb an impending affordable housing crisis.
The micro-developers began in earnest about 20 years ago to respond to the scarcity of affordable housing by providing low-cost rental stock by either building onto their homes or demolishing their homes and building units to rent out.
A lot of effort is going into trying to get a handle on the magnitude of the developments but, with properties shooting up all over the townships all the time, it’s hard to keep apace.
While no one can say for sure, it is estimated that this is a multibillion-rand property sector that is providing a few million rooms and that figure is growing every year.
In 2018, in research undertaken in this township market by Development Action Group (DAG), an NGO with more than 30 years’ experience in urban governance, housing and community organising, programme manager Zama Mgwatyu dubbed the micro-developers’ model as Backyarding 2.0 taking backyard shacks to a new level of sophistication with apartments the likes of which can “compete with Constantia”.
The DAG has been instrumental in getting the micro-developers recognised as a big player in the property sector.
Mgwatyu believes the developers, some informal, have the potential to help solve the country’s housing dilemma and their entrepreneurial spirit is providing work for others in the neighbourhoods.
Added to that, they are putting a lid on land-grabbing by creating homes for those who would otherwise put up a home on any vacant land, says Cynthia Ngxukuma, the former chairperson of the Township Developers Forum of the Western Cape that was set up to formalise the sector and share their stumbling blocks to a broader audience.
Since 1994, the pace of housing delivery in the country has not kept up with the growing demand, resulting in an enormous backlog.
In the Western Cape, official waiting lists say more than 600 000 people are in line for a council house, with more than 350 000 of those in Cape Town.
Added to that, urbanisation is increasing and government subsidised housing delivery is dropping, and that’s one of the problems the micro-developers are solving, says property economist Prof Francois Viruly, who has been working with micro-developers for many years and also runs workshops with the DAG and others in property entrepreneurship.
“I think the government has a role to play via making land available for this; these small developers have a role to play by building the accommodation,” adds Viruly
While yields of 22% might sound lucrative, it is not for the faint-hearted because there are many barriers to entry, says Chuma Giyose, the project co-ordinator at the DAG.
Two of the major stumbling blocks for micro-developers remain lack of access to land opportunities and lack of access to formal finance. Finance for the developments is incredibly expensive – the developers either cash in their pensions, max out credit cards, take credit at hardware stores or sell their cars, for instance, to get the money to build. Getting the formal banking sector on board is difficult, says Giyose.
Financial institutions are, by nature, conservative and governed by the Credit Act and they have a difficult time getting into this market,” says Deon van Zyl, the chairperson of the Western Cape Property Development Forum.
“However, if a client is getting a yield of 15 to 22% – well over double what some of the city’s big developers are doing – you should be there,” says Van Zyl.
The City of Cape Town is certainly taking note of micro-developers who are housing mostly the gap market – those earning between R3 500 and R22 000 – and COCT is implementing strategies over the next few years that will support and “not suffocate” the sector.
Around the micro-developments in the townships, other industries have emerged, helping jump-start the township economies.
Ngxukuma, who also runs her own property management company, Bukholethu Property Management, says the developments have not only generated income for the homeowners but have also given birth to new enterprises, such as her property management company, and new hardware stores, room rental agents, and grocery sellers.
So big is the need for accommodation in the affordable market, says Ngxukuma, that one advert could have more than 20 calls for viewing within a few hours.
“The next generation of millionaires can be made here, but things need to happen to ensure we can create generational wealth.”
The developers are creating a lot of value, she says, but in many instances, it is dead capital: they sometimes build where they don’t have the title deeds, the don’t always have approved plans, they can’t get a bank to finance them and they can’t get insured, so, ultimately, their capital can’t be realised.
It is also difficult for the city to respond with proper infrastructure because they are under the radar – some not paying rates.
Viruly says: “We just don’t know how big the market is … we can start guessing it … we are really trying even with Google Maps to see what is happening in markets … we can get this number wrong …
“One thing we know for sure is that ‘the train has left station’ – these developers are developing and nothing is going to stop them, the government is having to play catch-up with them to regulate the market.”
It is important, says Viruly, to note that about 70% of properties on the deeds registry is below R1.2m. “When we talk about the SA property market, we tend to look at top 10 to 20% when, in fact, most of the market is below that.
“Micro-developers are not the side show – they are the real SA property market.”
Van Zyl says: “These guys don’t always do things by the book, and there is certainly a disjunction between the regulatory environment and what they do. What we are seeing is a tale of two cities.
“It is impossible to take a regulatory environment for the formal sector and try impose it on a more informal sector – it does not work.
“Are they solving the housing problem? Yes they are; the problem is there is no real data because many of them fly under the radar.
“Many of these guys want to get additional funding – if it were not for all the red tape, they would grab the opportunity.”
Van Zyl adds: “Everyone needs to be realistic – in a perfect world it could be a one-size-fits-all …but we don’t live in a perfect world. The informality of the market by default means there are two worlds.”
Ngxukuma says: “We are not the Pam Goldings and Rawsons of the world – we do things differently here. We have systems that govern and that we understand … It is not easy for others to penetrate the market because they don’t understand how we do things – we have our own book.
“These developments are coming up everywhere … people are building with or without plans.
“The law moves too slowly and needs to catch-up with us. Through engagement with the formal sector, I can now encourage my clients to build right.
“I educate them that they are responsible for the health and safety of their occupants and that if anything happens on their erf, they are responsible … there is a responsibility beyond building and finding tenants … one just has to think of the building disaster in George recently – it has opened many eyes to responsible and formal building.”
The difference between the informal and the formal property sector is something the COCT is sensitive to as it tries to assist the sector to enter the formal economy.
The COCT is juggling many questions, says David Gardner, the team leader of the Programme Management Unit of the City of Cape Town’s Small Scale Rental Unit Mayoral Priority Programme.
For instance, “how do we change from regulating micro-developers out of existence to instead, guiding and assisting them through levels of public support so that the sector can become a formal housing submarket that develops housing on scale and assist to fill the gap?”
The developers need support as they are addressing some of the fundamental challenges facing the City of Cape Town, including rapid urbanisation, a shortage of affordable housing and poor economic growth, he says.
It is indeed a pivotal moment requiring a mind shift for both the micro-developers who are informal, in some instances, not regulated and, at times, non-compliant and the COCT which has been a by-the-book regulator.
Deputy Mayor Eddie Andrews says: “It is a big learning curve for all – the government is learning not to be a regulator but a supporter. There has been a huge realisation in the past 10 years that this is a viable system to provide decent affordable rental accommodation and create the most viable business echelon in the country.”
So important is the sector that the COCT recently made small-scale affordable rental a Mayoral Priority Programme and the mayor, Geordin Hill-Lewis, is often seen in the areas, visiting and talking to the micro-developers.
Gardner says: “People are creating income opportunities. There are levels to regulations and we need to consider what those levels will be in these areas.”
It is true; the city is thinking more laterally and working hard to change the approach towards the market, including ensuring municipal by-laws are relevant.
The results of 10 different work streams within the City, which are working on how to better support and guide the market into an important housing deliverer and city shaper, are being finalised and will be implemented as early as next year.
To ease the path from non-compliance to compliance, something the DAG is striving towards for the sector, the COCT has been amending municipal by-laws to better accommodate micro-developers. A notable development is the implementation of a R20 million subsidy fund to assist developers in paying development charges, a significant financial barrier.
The COCT will introduce prototypical plans for developers once the municipal planning bylaw changes come into effect. The plans, vetted by various city departments, will streamline the approval process, significantly reducing the time and bureaucratic hurdles traditionally involved.
The City recognises the power of the sector to deliver housing and densify and also takes note of its duty to ensure property developments don’t infringe on other’s property rights, health and safety.
One thing is for sure: the informal sector is thriving.