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NEWS
Henley offers scholarships to investigative journalists
Henley offers scholarships to investigative journalists

5 trends that can keep the South African MBA relevant
5 trends that can keep the South African MBA relevant

We need to realign government, business and civil society
We need to realign government, business and civil society

Life as a full-time MBA student
Life as a full-time MBA student

Brexit delay provides breathing space for SA
Brexit delay provides breathing space for SA

MSA joins the ADvTECH family
MSA joins the ADvTECH family

SA plunges to 117 out of 149 in gender wage equality
SA plunges to 117 out of 149 in gender wage equality

UCT’s Executive MBA recognised for its distinctive approach
UCT’s Executive MBA recognised for its distinctive approach

GIBS Executive MBA programme debuts in top 50
GIBS Executive MBA programme debuts in top 50

Can Africa fill the glass?
Can Africa fill the glass?

YALI AFRICA launch at Unisa
YALI AFRICA launch at Unisa

The fake resurrection of South Africa
The fake resurrection of South Africa

Don't panic: The digital revolution isn’t that unusual
Don't panic: The digital revolution isn’t that unusual

Why Agile works
Why Agile works

How firms can avoid the mediocrity trap
How firms can avoid the mediocrity trap

How a 100000-strong company is relearning how to innovate
How a 100000-strong company is relearning how to innovate

The changing shape of the MBA
The changing shape of the MBA

Adding climate change to curriculum is a top priority
Adding climate change to curriculum is a top priority

The MBA should turn you into a business disruptor
The MBA should turn you into a business disruptor

Innovation in SA organisations driven by C-level support
Innovation in SA organisations driven by C-level support

UNISA SBL a torch-bearer of training for military veterans
UNISA SBL a torch-bearer of training for military veterans

Scaling up the MBA for relevance in the 4IR
Scaling up the MBA for relevance in the 4IR

Moody's: SA not out of the woods yet
Moody's: SA not out of the woods yet

GIBS manufacturing-focused MBA kicks off in Durban
GIBS manufacturing-focused MBA kicks off in Durban

Henley’s Makhoalibe selected for sought-after programme
Henley’s Makhoalibe selected for sought-after programme

Personal potential, a source of power
Personal potential, a source of power

Reach your business leadership potential with a MBA from WBS
Reach your business leadership potential with a MBA from WBS

MPC: SA needs a period of stable interest rates
MPC: SA needs a period of stable interest rates

SA’s energy problems just the tip of the iceberg
SA’s energy problems just the tip of the iceberg

What's really driving disruption?
What's really driving disruption?

Why has there been such a failure of leadership?
Why has there been such a failure of leadership?

Steinhoff: Exactly where does responsibility stop and start?
Steinhoff: Exactly where does responsibility stop and start?

The cure for the loneliness of command
The cure for the loneliness of command

How to survive in the age of digital transformation
How to survive in the age of digital transformation

New MBA timetable starts in 2016
New MBA timetable starts in 2016

EVENTS
Henley MBA & PGDIP Preview Day
Henley MBA & PGDIP Preview Day
29 May 2019,
Pretoria

UCT GSB MBA Information Sessions
UCT GSB MBA Information Sessions
15 October 2019,
Johannesburg



03 MARCH 2019
A solution to SA’s housing crisis is right under our noses
by Mayra Hartmann
Innovative informal developers offer a solution to South Africa’s housing shortage – yet many investors and those in the property development sector lack insight into its potential.

The lack of affordable housing in South Arica is a well-documented problem. The housing backlog reportedly stands at 2.3 million houses and is growing by around 178 000 houses a year. Neither the public nor the formal private sector appears to be able to close this gap.

The consequences of and reasons for this crisis often make news headlines. Less known are the innovative approaches emerging in the rental housing space, and particularly in townships, where property entrepreneurs are quietly getting on with the business of building houses for people who need a roof over their heads – often with minimal support from financial institutions, investors and the formal real estate sector.

These entrepreneurial property developers – sometimes called micro-developers – operate in townships, areas usually characterised by a lack of development. Some research indicates that they are making a healthy 20% return on investment within their first year. In addition, according to the UCT Nedbank Urban Real Estate Research Unit, their development costs are lower than that of their institutional private sector counterparts.

As the Unit’s Robert McGaffin said in an article inProperty 360, “These guys are providing a phenomenal service to their community.” And the emerging industry is creating an army of small enterprises with developers using skilled community members to build the units.

“We are looking at contractors, construction companies, and a host of other professional services such as consultants, lawyers and estate agents, in the communities, who have also thrived in this new market,” said McGaffin.

While some of these micro developers are survivalists, only erecting structures in their own back yards to rent out, there are many opportunity-driven developers who follow a typical and formal property development process, to develop high quality multi-unit dwellings, with the intention to scale with each project.

These developments hold significant potential to plug an existing gap in the rental market; consisting of those households who earn too much to qualify for free state-subsidised housing but struggle to find safe and affordable housing in the private market. An estimated 3.5 million people (according to the 2011 census data) fall into this category. Yet, despite this proven demand for their product, township developers often struggle to obtain finance for their developments. The building plan approval process can be lengthy, and they often borrow money from family and friends to finish their developments. Most take out a personal loan from a bank at some point, but as first instalments are usually due after 30 days – and it can take up to three months before tenants are able to move in – this is not an ideal solution.

Part of the problem is that potential funders are unaware of the business opportunity that exists in this market. My research at the UCT Graduate School of Business indicates that this is compounded by a lack of reliable and verifiable information about these businesses. Many township entrepreneurs lack formal business processes such as record keeping and accounting systems. This makes it difficult for developers to accurately measure profitability and build a verifiable track record, leaving potential investors struggling to evaluate their efforts and calculate a potential return on investment.

Additionally, the mandates of traditional property finance providers and banks do not afford them the luxury of developing finance products catering to this crop of entrepreneurs, who are part property developer part township entrepreneur. Concerns cited are the potential for defaults and construction risk, as well as the strength of the underlying security, which would be required in the case of mortgage loans.

Some of these concerns seem to rest upon misperceptions of the township context. Construction risk, for instance, assumes that construction in the townships is typically of low quality, but this is not necessarily true. In some areas, building inspectors are building a database of local contractors and working closely with them to ensure that they follow the approved plans. This trend towards formalisation means that it can be expected that the construction risk will also decrease.

Creating a more enabling environment for micro developers will require funders that are not only about the numbers – and are able to take a long-term, developmental perspective. Fortunately, there are some organisations that are stepping up to give micro developers a chance, using innovative approaches that combine access to financing with strong networks, and training to provide them with targeted support and advice.

The Trust for Urban Housing Finance (TUHF), for example - which was pioneered by leading South African development finance organisations in Johannesburg - has partnered with other asset managers and commercial banks to finance over R4bn in inner city residential rental property and helped hundreds of property entrepreneurs with their developments over the past decade. TUHF’s pilot project uMaStandi provides micro-developers with tailor made mortgage loan facilities, training and mentorship to help them achieve their goals.

The Development Action Group (DAG) is also experimenting with new approaches. With its Zanethemba initiative it is working with local developers to develop a 3 300m2 piece of land in Khayelitsha into affordable medium-density rental accommodation. DAG project manager Zama Mgwatyu writes in an e-book: “We are testing new ideas here. Then we can start to share the learnings with government, and with financial institutions like banks, who were previously reluctant to work with emerging developers.”

A third example can be found in Hustlenomics, winner of the SAB Foundation Social Innovation and Disability Empowerment Awards 2018, and a social enterprise that gives low income families, who have informal backyard shacks, the opportunity to build durable structures in their place. Using alternative building technology, including interlocking bricks made from recycled materials, the new structures are built at no cost to the owners. They are financed using an innovative shared-home financing model, where rental income, generated from the completed structure, is used to pay off development costs, after which full-ownership of the structure is handed over to the land owner.

Considering the many obstacles facing the delivery of housing and the growing tensions caused by increasing unaffordability, the imperative to build on these innovative approaches and craft effective solutions for all stakeholders could not be clearer. By recognising what is working, empowering at the grassroots and finding ways to mobilise existing resources to scale these successes, we can ensure South Africa makes progress towards meeting the UN’s Sustainable Development Goal 11 (Make cities and human settlements inclusive, safe, resilient and sustainable) and achieve inclusive growth.

Mayra Hartmann is an MBA graduate and Bertha Scholar at the Bertha Centre for Social Entrepreneurship and Innovation at the University of Cape Town’s Graduate School of Business. This article is based on her MBA thesis titled: “A descriptive analysis of the financial constraints experienced by entrepreneurial micro developers in Cape Town”.
Source:

University of Cape Town Graduate School of Business
UCT GSB is internationally renowned as one of a few business schools in Africa with the prestigious triple-crown accreditation with endorsements from EQUIS, AACSB and AMBA. As a top school with more than five decades of experience in Africa and other emerging markets, UCT GSB has a responsibility to engage with its socio-political and economic context. Its teaching, learning and research are directed towards addressing the complex and pressing economic and social challenges of our world today. Visit our InfoCentre or website.

University of Cape Town Graduate School of Business, Executive Education
Executive Education at the UCT Graduate School of Business is dedicated to growing the leadership backbone in organisations and individuals and inspiring a new generation of leaders to engage with the challenges of the African continent in a hyper-connected and globalised world. Visit our website.

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