Finding sound real estate investment

1 November 2010

South Africa’s post-apartheid transformation and the growth of a new middle class are fuelling demand for affordable homes. For private equity fund International Housing Solutions (IHS) and its global investors, that means opportunity.

South Africa in the Washington Post IHS’ South Africa Workforce Housing Fund has raised some US$250-million (R1.7-billion), with early support from the US Overseas Private Investment Corporation, to take equity stakes in developers and development projects that are adding tens of thousands of new homes and apartments to South Africa’s housing stock

Investors include Citigroup Global Markets along with a major North American endowment and a pension fund. The Development Bank of Southern Africa is also participating.

In its largest deal to date, IHS has invested around $30-million (R200-million) in the conversion of 11 landmark buildings in downtown Johannesburg into 3 000 rental units. This and similar IHS-funded projects are making an important contribution to the revival of Johannesburg’s central business district.

Other IHS-backed projects include a 4 141-unit estate in Soweto’s Jabulani district – the kind of development that is making Soweto unrecognisable to anyone whose mental picture of the township was formed before the advent of democracy.

IHS’ Washington-based managing partner is Soula Proxenos. She maintains deep ties with her home country and is happy to be counted as a Global South African, part of a growing network of South African emigres committed to the country’s success.

The housing in which IHS is investing is targeted at salary earners who can afford reasonable mortgage payments or rent but battle to find reasonably priced accommodation in the current market. These, says Proxenos, are the “missing middle” and many, she believes, are better off renting rather than owning.

“Overall the demand for housing in the affordable property sector is huge. But current access to finance is driving consumers to rent rather than buy. For developers and investors like IHS, the high demand plus the relatively low default rate in rental payments make the provision of rental accommodation in the affordable housing market an ideal product.”

Proxenos, who was managing director of Fannie Mae’s International Housing Financial Services before joining IHS, says the idea that home-ownership is always the best option is “clearly outdated”, putting people into homes they cannot afford. “It has proved a dangerous model in the US, leading to the worldwide housing crash which sparked the meltdown in financial markets.”

This article was first published in South Africa Now, a six-page supplement to the Washington Post produced on behalf of Brand South Africa. Download South Africa Now (PDF, 2.12 MB).