Unveiling Cape Town’s Affordable Housing Renaissance: Seizing Opportunities in Real estate

In recent times the Western Cape has witnessed a renewed focus on and revived political enthusiasm for affordable accommodation development, sparking a wave of positive movement in the affordable rental housing market, particularly in inner-city, in-city and burgeoning urban nodes. This was further underscored during last month’s Western Cape Property Development Forum (WCPDF) 11th annual conference, despite national election anticipation. TUHF experts shed light on the trends at play.

As a WCPDF member, TUHF attended the recent conference as an invested party, keen to understand the progress on commitments made during the previous conference and engage with all market role players on fostering a collaborative and enabling environment.

Speaking from the conference, Velda Derrocks, TUHF’s Regional Manager for the Cape Region, said: “I did feel that some of the feedback and from an economic outlook perspective as well as plans and commitments to support expansions in the regional property markets was a bit subdued, though this is not surprising as this year’s conference was held a couple weeks ahead of the country’s general elections. However, the collective impression on the outlook and prospects of the regional property markets is still cautiously optimistic.

There’s commitment from public sector and appetite from private sector – and I think we’ll see a lot more movement post the elections and once there’s clarity and alignment on some of the planning aspects. It is also encouraging to note from our consultations with public and private sector players in and around the conference that there is collective confidence that progressive steps are being taken and in the right direction to open up property markets across the region.”

Nahim Ramzan, TUHF’s Portfolio Manager in Cape Town said that part of this can be attributed to how the Western Cape government has responded to the need for quality, affordable rental housing options that are well placed to access workplaces, public transport and other important amenities. “The focus is visible across most areas where urban densification is pressing. There's a growing appetite to fund developments in these areas, emphasising renewal and refurbishment projects aimed at making quality, affordable rental housing available. For property entrepreneurs with the ability to see the potential in affordable housing as an asset class, these drivers represent an excellent opportunity.”

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.

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