Western Cape ripe with affordable housing potential

The TUHF Western Cape regional team believes that even though COVID has had an impact on the property market, there are still significant opportunities for savvy investors looking to enter the affordable residential sector as new areas for development become available.

Even though the residential property sector in the Western Cape has not been spared by the impacts the pandemic, it has shown a higher level of resilience when compared with other nodes in South Africa. This can partly be attributed to the region’s ability to recover quicker and provide buyers and tenants with a solid selection of affordable units, says the TUHF Western Cape regional team who maintain there are still significant opportunities to be had for investors.

“Historically, the residential bubble in Cape Town has been well-documented. The areas of demand have been guided by the tourism industry and the international travel and work sector. Our focus area, the Voortrekker Corridor, was growing significantly leading up to pandemic last year. This was driven by the need for quality and affordable residential accommodation,” says Paul Nel, Western Cape based Portfolio Manager at TUHF.

However, with the hard lockdown hitting South Africa in March 2020, he says the Cape Town’s City Bowl transformed into a ghost town for six-months with restaurants and hotels having to close.

“While we have seen a gradual recovery with the sector re-establishing itself with entrepreneurs, the scope of the property market has started to change. Much of the focus turned to the kitchen and service market where more than one kitchen would share a larger space/kitchen or even shared space to produce takeaway food for delivery,” says Nel.

The impact on the student accommodation sector can also not be ignored. According to Nel, the University of Cape Town (UCT) supported a mandate for 5 000 units to be developed over the next two years, but this is currently under review due to the impacts of the pandemic and the increased focus on online learning.

He says these factors are contributing to the need for a different developer mindset. Additionally, older developers are retiring or moving into the suburbs with new ones struggling to gain momentum due to difficulties in applying for traditional loans in these challenging economic times.

“And yet, there has been resilience in our market. From Woodstock into Bellville and further up to Kuils River. Also, Durbanville and the informal sectors in Stellenbosch, Worcester, and Wellington have shown a high demand for affordable housing due to the number of agri-business based in these areas,” adds Nel.

Changing dynamics

Velda Derrocks, regional manager for the Cape region at TUHF, agrees. “Many of the vacancies are driven by properties in the CBD and AirBnB units that are not used or being put out in the market for normal rental. However, the affordable housing space is well serviced with not much capacity on offer. Even so, the Cape Town market has been through a challenging few months with some TUHF clients opting to sectionalise their properties and sell off the individual units. All indications are that bad debt and vacancy levels are normalising and edging towards pre-COVID levels.

But this does not mean it is not possible to find investment potential.

“Once we started building an understanding of how to operate in a COVID-driven market, we have seen good collection levels, lower vacancies, and even demand for new units in the Western Cape. Underpinning this resilience is good governance, the type of products available, a transport system that works, and visible law enforcement,” says Derrocks.

Nel believes that because the City Council only approves a limited number of new developments annually, and due to the Council’s thorough understanding and application of town planning and associated laws, there is more manageability of the supply and demand curve.

“The market in the Western Cape has remained relatively flat over the past several years. While certainly having an impact, COVID has not been as devastating here – from a rental perspective – as some other nodes in the country. For example, we have seen significant interest in new areas like Boston and across the eastern seaboard past Blouberg and Table Bay. Historically, these areas see much investment from long term rental investment. That has changed with zoning rights in place creating significant potential for affordable housing there,” says Nel.

Rebuilding for the future

Nel expects the Western Cape to show robust growth and returns over the next five years with new developers coming into the market.

“Office and industrial conversions into residential units will likely happen as the market moves into different, untapped areas. Work-from-home has driven a new product from a residential topology perspective. From our side, we have been continually engaging with our clients and developers to get renewed growth going,” adds Nel.

This includes hosting video conferences with clients and associated professionals that include engineers, quality surveyors, and others to expand the TUHF network in the market. Engagement has been focused on word of mouth and these online activities.

“We have also started engaging with the City Council and its various departments online. This has given us a new awareness of their processes and the different ways that are best to work with each department. Our focus for the short-term is to be consistent in our approach and play a prominent role as facilitators between developers and clients,” he says.

For Derrocks, TUHF realised it needed to adapt to different ways of liaising with clients. “This has resulted in many innovative approaches that we will continue to build on. Virtual meetings might have replaced face-to-face discussions, but our focus remains on adding value to our clients.”

Branching out

“Throughout all this, we still believe in the potential of the affordable housing market in the Western Cape. We can facilitate and assist developers to bring quality products to a market where there is significant demand for it. For TUHF, it is about remaining discerning on the entrepreneurs and developers we partner with,” says Derrocks.

Nel adds that TUHF will continue to educate the market on the potential of affordable residential renting properties. “People need to change their views of affordable housing, especially in the Voortrekker corridor. By engaging with the market we want to attract the right type of entrepreneurs and developers.”

Khulasande Naku, national operations coordinator for TUHF, says this reflects how TUHF is still a good business that does deals that make financial sense regardless of external market forces like the pandemic.

“Our focus is still on empowering the small to emerging entrepreneurs in the property space and diversifying the face of inner-city property ownership, especially in Cape Town. We are continually looking for right sized projects that can be turned into quality assets for the business and our clients,” concludes Naku.