Nomfundo Molemohi, uMaStandi Portfolio Manager for in the Western and Eastern Cape
In recent years, transforming and revitalising townships has increasingly become a priority, as the high demand for affordable housing is coupled with a critical role that townships play in bolstering South Africa’s economic growth.
Townships, therefore, are not only an important part of South Africa’s history, they also provide attractive investment opportunities to entrepreneurs. Key to transforming the township economy, and thus changing the country’s socio-economic landscape, is micro property development. Entrepreneurs are empowered and supported as they create affordable, decent housing with access to essential amenities within township areas. They are also guided on how to be fully compliant with local laws.
That has been our mission at uMaStandi for almost ten years and continues to this day. From its beginnings as a pilot project in Soweto, it has expanded in scope to enable entrepreneurs to create sustainable, rent-based businesses in Gauteng, KwaZulu Natal, Western Cape and the Eastern Cape. Our aim is to foster successful property entrepreneurship, along with doing our part to stimulate local economic growth.
While development can be immensely rewarding, it is not simple. For any property entrepreneur to become a successful developer, education is key. They need to have knowledge of basic finance principles, construction and property management, which is why we offer a property training course, run annually.
As with starting any business, property entrepreneurs must also have some equity. For any commercial investment property transactions, there is a loan portion and a portion that the investor provides in the form of cash. The days of receiving 100% loans are long gone. Instead, investors must provide a portion in unencumbered cash that constitutes as much of their own savings as possible to create equity in a project.
Like every client, so too is every project different. Those beginning down this path need to know that if their project is not viable and doesn’t check our boxes for being a solid investment, then we won’t finance it. Our overarching aim as a specialist property financier committed to inclusive growth and creating real development impact is to jointly grow and have a long-term relationship with the entrepreneurs we work with, while also addressing the urgent need for affordable housing.
When we consider which projects to back, we look for potential. Questions that we consider in the loan approval process include what skills the developer brings to the table, who is helping them on the project,
and whether they have an architect and builder onboard, as well as a structural engineer if they want to build a double story property.
If they don’t have these in place, it doesn’t automatically disqualify them from receiving a loan, but we do then assist them to do a due diligence assessment so that their project is viable.
Additionally, it’s important to understand that where the property is located can pose significant challenges of town planning. Because of the historical origins of townships, the necessary infrastructure for clean water and sewerage, along with other essential municipal services, are frequently insufficient. This can slow down zoning and the approval of business plans, impeding developments – and it is therefore vital to work with the project team who can advise and support in navigating these complexities.
Another imperative on the micro property development journey is compliance. Entrepreneurs cannot build or renovate a property without knowing the zoning of the site or ensuring that their plans are approved. It is also important that property entrepreneurs do their research and understand the challenges involved in a rental property business. That is why we strongly encourage all developers to network, participate in forums and learn from people who are already in the property business.
Along with this, property developers need to demonstrate ongoing accountability. We require those we fund to send us proof that they have paid their municipal bills and are up to date with SARS. Additionally, we inspect the property to ensure that it is being well managed, there isn’t water leaking into the street and no degradation of the property for example, because we want the value of the property to appreciate rather than depreciate.
These are a few of the main parts of the journey towards shaping township transformation. Even as the road is long and there are several steps that need to be taken, at the end of the day the effort is well worth it. Provided that entrepreneurs are willing to be diligent in their approach, there is plenty of potential for success, as the demand for qualify affordable housing is growing.
By working with us, property developers can receive support to ensure they run successful businesses, impact communities where they invest and contribute to growing township economies.
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