PART 2: SEIZING OPPORTUNITIES IN CAPE TOWN’S AFFORDABLE HOUSING RENAISSANCE

The positive momentum has been guided by the tourism industry and the international travel and work sector, which has also been influenced by post pandemic hybrid work and semigration trends. However, finding suitable land at the right price in Cape Town and its surrounding metropolitan nodes has proven to be one of the challenges many aspiring developers have been faced with. Even so, the market has shown resilience, especially in suburbs like Woodstock into Bellville, and further up to Kuils River. Durbanville and the informal sectors in Stellenbosch, Worcester, and Wellington have also shown a high demand for affordable housing.

Striking a balance between project cost and the income that can be generated by the resulting rental or sale prices for residential investment is crucial. Ramzan emphasises the importance of assessing return on investment and income generation potential, pointing out that TUHF supports its clients and potential clients through a thorough feasibility study.

Finding the right property at the right price involves considering the property’s development capacity and adhering to legislative requirements and restrictions for the area. Ramzan stresses the need for properties to be “fit for purpose” – aligning development plans with the demographic and accommodation needs of the target tenant base. He also points out that many of Cape Town’s long-established suburbs come with their own unique set of legislative considerations.

“In heritage-rich areas like Woodstock, for example, where many buildings are over 60-years old, navigating the Heritage Site assessment process becomes crucial. While older buildings may not necessarily have heritage value, developers will still have to apply for permission to refurbish or demolish buildings in favour of densification. Building plans must also comply with design requirements in such areas to receive approval. All this adds additional time and costs to the project,” says Ramzan.

Ramzan advises property entrepreneurs to consider the full lifecycle of their projects, including their exit plan. Balancing property values and rental or sale returns requires a comprehensive perspective. “For instance, if the intent is to hold the property as a rental business in the inner-city, incorporating gardens may take a backseat in the design in favour of lock-up-and-go style units in accordance with tenant preferences.”

Similarly, property entrepreneurs who are developing for sale under sectional title will need to consider the lifestyle amenities that will attract investor and private property buyers.

Derrocks indicates that within the Western Cape TUHF’s sectional title development for sale loan product has proven to be very successful. “This product is aimed at emerging and experienced local developers who understand how the City of Cape Town works as well as the development landscape and are familiar with sectional title sales and want to play in the affordable housing market, where we provide a shorter-term financing model that is repaid upon the sale of the development.”

Despite the positive movements in the regulatory environment, challenges such as high interest rates and inflation still concern property investors and buyers. The demand for affordable rental housing remains robust, driven by these economic uncertainties.

“While the demand for affordable housing won’t result in an immediate surge in new developments, investors who – like TUHF – see potential where others don’t may consider purchasing land or existing buildings for refurbishment or repurposing. The landscape of affordable housing in the Western Cape is evolving, presenting both challenges and opportunities for those ready to navigate the intricate market dynamics,” concludes Ramzan.