The affordable housing sector has seen the best growth in the South African property market in 2011, addressing the increasing demands from low to middle income families and reaping rewards for investors.

ReConnect Africa spoke to Soula Proxenos of International Housing Solutions, a private equity firm focused on the development of affordable residential housing in South Africa, about their experiences in South Africa and their plans to bring affordable housing to other parts of Africa.

ReConnect Africa (RCA): The first IHS fund – the South Africa Workforce Housing Fund – was extremely successful. What do you believe were the key reasons for its success?

Soula Proxenos (SP): A few factors contributed to our success. Firstly, the IHS business model is robust: there is a profound shortage of low and mid-priced housing in SA compared to the demand in this sector. Secondly, the property market in SA is very established, in that it is transparent, well-funded and has good legal and regulatory infrastructure. IDP confirms this year-on-year.

Finally, I believe IHS has acted as a bridge for foreign institutional investors who required robust reporting and diversified portfolio exposure to SA real estate, and achieved this through an investment in IHS. Our business model is attractive, because we are bottom-line focused while at the same time achieving social transformation by creating mixed-income, mixed-use and safe communities for low- and mid-income families.

RCA: What would you describe as the key concern of investors considering your funds?

Different investors have different concerns, but political stability and potential political interference in markets are recurring issues raised by investors. Our international equity investors have never invested in Africa before, so it was of the utmost importance for this group to feel secure with IHS as their fund manager.

RCA: Affordable housing is a key issue for the South African government and has attracted a lot of attention. How was IHS able to position itself so successfully against the competition within this sector?

SP: Ironically, there is very little competition in this market. When we launched the South African Workforce Housing Fund, we were unique in the market. Since then, one institution has copied part of our model. However, because there is so much unmet demand, competition is not a concern.

RCA: What have been the critical lessons your company has learned from its projects in South Africa?

SP: We have seen that property projects are living creatures and they need oversight and tending at every stage. They are not done when the deal is done - that is only when the work begins. Choosing the right development partner is the single most important thing that we do, followed by thoroughly asset-managing the projects in which we have invested.

RCA: How does IHS intend to expand its offering elsewhere in Africa?

SP: Our business model is simple. We partner with developers to structure projects where our financial experience and skills, coupled with our equity, sit alongside developers who are experienced at selecting, managing and marketing projects. We are aiming to replicate what we are doing in SA in the rest of Africa over time.

We have been challenged in finding developers with capacity, and markets that can absorb large projects. Many markets lack mortgage finance and this can be deeply inhibiting to market growth. Clean and clear title is another problem we encounter in markets, because without clear title, institutional investment cannot flow.

RCA: What role can Africans in the Diaspora play in terms of investment and involvement within the affordable housing sector in general and your company in particular?

SP: Knowing that there is equity available in the market and that we are open for business may be useful for the Diaspora, to recognise opportunities to utilise IHS’s financial capacity. As a member of the SA Diaspora, I am impressed by the broad network among South Africans working abroad as well as their entrepreneurial spirit. We hope to encourage a greater knowledge of our fund as a way to uncovering potential projects in South Africa, but even more importantly, in the rest of Africa.

RCA: Can you share some examples of some of the projects IHS has undertaken?

Since 2006, IHS has financed 25,000 units in 17 deals in South Africa, with several more projects at various stages of finalisation. Our footprint now extends across South Africa’s major urban centres. Examples of our projects include:

Fleurhof

Fleurhof is set to become a model of integrated community developments. Upon completion, close to 9500 units would have been built, as well as several schools, crèches, community halls, parks and commercial properties. It is located between Roodepoort and Soweto in Gauteng, and units are offered both for sale and rent, with free-standing homes and sectional-title walk-up buildings.

Stellendale

Located in the Kuils River area in the Western Cape, the Stellendale development comprises close to 600 units in a terraced, landscaped development. It has easy access to both the major N1 and N2 routes and is security-access controlled. Stellendale is close to a number of shops, medical facilities, schools and universities.

Greatermans

The former office building near the Jo’burg CBD was converted into more than 400 rental units. The complex boasts modern refurbished units with superb finishes and excellent security, as well as VOIP telephones and wireless internet. The project cost close to R90 million.