Private groups banish Joburg's inner-city blues
Far from the old perception of too risky and dangerous, it is proving a residential development success
TUHF CEO Paul Jackson says the housing financier is achieving very strong returns in Johannesburg’s inner city, about 13 years after its formation.
“Initially it was very difficult to fund projects in the inner city. We needed to borrow from commercial banks to lend to various entrepreneurial people in the city. But they wouldn’t lend to us because they viewed the city as risky and dangerous.
“Years on, we have had various successes in the inner city especially with multi housing projects valued below R5-million.”
Jackson said that while some listed property companies are involved in inner-city residential developments, their sizable projects account for only about a third of the inner-city work that is going on.“We and other private groups and individuals are involved in the 70% of what’s going on in the inner city.”
TUHF had provided support, guidance and risk management for new entrepreneurs.
“ In our 13 years, we have financed over R4-billion in inner-city residential rental property, and currently our loan book holds over 20,000 residential units. This is not to mention the hundreds of successful property entrepreneurs who are now running sustainable residential rental businesses, providing affordable and decent living spaces in our inner cities,” Jackson said.
TUHF has struggled to get funding from large traditional banks in South Africa. But it recently gained support from the Public Investment Corporation, Futuregrowth, Stanlib and Sanlam.“There is a lot of potential in the inner city and these backers have seen that. About 13 years back I would have said to someone if they spend R15,000 on a flat in the inner city, they were doing well. A price of R30,000 would have suggested they were overpaying. Now in 2018, if you spend R200,000 on a flat, that’s good and R250,000 is on the high side. Clearly there is growth in the inner city and I think more financial institutions are beginning to see this,” said Jackson.
TUHF expects to achieve a return of equity of about 16% in 2018 and 18% in 2019. It invests in projects at yields of 13% and above.
Jackson says his team has managed to finance projects across the inner city, managing security costs and other challenges along the way.
This is while some large property funds have had to spend heavily on security in recent months, which has dampened their inner-city returns; SA Corporate highlighted this in its recent financial results for the year to December. It had expected to grow its dividend 6% but ended up only managing to achieve 4.4% growth.