Investors in affordable housing reap excellent returns

International Housing Solutions (IHS), which has to date committed over USD180 million (R1.8 billion) to enabling the large-scale provision of housing stock in the affordable sector in emerging markets, has announced its first successful project exit in South Africa, delivering a 24.5% risk-adjusted return.

Soula Proxenos, managing partner of IHS, said that the strong returns achieved with the first of its South Africa Workforce Housing Fund exits proves the success of affordable housing as a solid asset and augers well for ongoing investment in the sector. IHS recently announced the formation of its second fund, which is expected to attract more than R3 billion for investment locally as well as in homes for emerging markets in the rest of Africa.

Proxenos said that the sell-out success and early exit from its project in Joburg's northern suburb area, Dainfern, was an excellent example of IHS's accomplishment in providing affordable homes close to work and other infrastructure.

The completed project, called The Paddocks, provided 384 apartments starting from R399 000 and is one of 35 projects across South Africa in which IHS has provided finance for about 28 000 units of housing, with a combined total value of more than R8.6 billion.

Obvious investment sense

Proxenos said that funding the development of affordable housing units made obvious investment sense, due to the high demand and massive backlogs in providing homes for would-be property owners in the emerging middle class, as well as the good investment returns being realised.

"Housing also has a double positive impact in a community. Not only does it increase the standard of living for its occupants, but development of housing is a proven employment creator. Independent research shows the impact of the fund included the creation of the equivalent of 100 000 jobs based on employment years.

"While seeking the best opportunities for our investors, we are also committed to contributing positively to the growth of the societies in which we operate. All the projects we have funded promote sustainable community living and provide aesthetically pleasing, quality homes close to amenities and public transport."

Proxenos said that IHS was committed to optimising returns for its investors and that the fund exit strategy was primarily driven by the sale of developed homes and rental pool stock, but was also dependent on market conditions.

She said that The Paddocks project sold out quickly because of its aesthetics and features, favourable pricing and the high demand in the area. The development comprises apartments in low-rise three-storey blocks with children's play areas, a clubhouse and pool, a basement wine cellar, crèche, open park spaces as well as a vegetable garden. Targeting the middle range of young professionals and families, it also attracted significant interest from investors with a large portion of units currently occupied by tenants.

Diverse portfolio

Proxenos said that IHS's diverse portfolio includes both projects in city areas as part of urban renewal as well as new developments in outlying high-growth areas, such as the R1.35 billion Spring Valley development which is creating around 3000 new homes for workers in Mpumalanga's coal mining belt. IHS's Carnival City and Jabulani Developments will add about 6000 new homes to the Boksburg and Soweto areas.

Other projects include urban renewal ventures, such as the successful conversions of iconic buildings, including the former headquarters of Greatermans, and other office blocks in the booming Braamfontein area. Here, spaces have been converted into much-needed rental units for the student and young professional market, which is increasingly moving back into the inner city of Joburg.

The fund also has about 2500 units across established and growing suburbs in the Western Cape, over 1300 student housing units (about 2200 beds) in Joburg and Bloemfontein, and brought the first affordable development to SA's upmarket Indian Ocean seaside suburb of Umhlanga.