Inner-city housing developer Divercity Urban Property Fund has secured R500m from CDC Group, the UK’s development finance institution (DFI) and one of the largest impact investors in Africa. The investment will accelerate the company’s growth push as it looks to list in the next three to five years.
CEO Carel Kleynhans said in an interview with Business Day on Monday that Divercity, which focuses on developing housing supported by world-class amenities and infrastructure in inner-city precincts, was on track to double its asset base from R3.4bn to about R7bn in the next two to three years.
“We started as a housing play and have grown to become an impact fund. In the next three to five years, we will list Divercity when our asset base breaches R6bn, if market conditions are favourable,” he said.
Divercity announced on Monday that CDC Group has committed $36m (R500m). This investment would be used to fund the construction and management of 2,500 new residential units over the next five years, to be built predominantly in Johannesburg.
These apartments will be built for rental, starting at R3,500 a month and ranging up to R7,000 a month. The offering will start with studio apartments and then one- and two-bedroom flats.
The transaction was also partly funded by its existing shareholders and local private equity investor Futuregrowth.
The investment will help provide quality, affordable and environmentally sustainable housing for low- and middle-income households in well-located but underinvested neighbourhoods in major SA cities.
The housing will compete with the likes of JSE-listed SA Corporate Real Estate, which owns and operates the Affordable Hosing Company (Afhco).
Divercity won’t compete with JSE-listed housing developer Calgro M3, which tends to build residential schemes along Gauteng’s urban periphery.
Divercity invests exclusively in the inner city and focuses on affordable housing projects.
On Heritage Day, September 24 2020, it launched Jewel City, a R1.8bn mixed-use development, with phase one including 1,200 apartments.
Other notable assets in the Divercity portfolio include the Turbine Hall in Newtown, which once housed AngloGold Ashanti and a section of the office of the Gauteng premier, and Talis House in Marshalltown, home to the Gauteng education department.
The company is actively pursuing R3bn-plus of property development options, with projects that are 65% weighted towards affordable residential offerings, said Kleynhans.
These include the redevelopment of Absa’s Towers Main as a mixed-use precinct, and a new residential build in Maboneng.
Kleynhans said SA faces a housing shortage of about 2.3-million units. A significant majority of the country’s lower-cost housing has been built on the urban periphery.
This limited residential options for low- and middle-income households to predominantly informal, congested and low-quality housing on the outskirts of cities.
It also impeded access to essential services including schools, health-care facilities, public transport networks and employment hubs needed for improved social inclusion and living standards, said Kleynhans.
“People have been building affordable housing at odds with society for years. Too often are developments far away from amenities. South Africans spend a third of income on public transport, which is staggering and keeps people locked in poverty,” he said.
The commitment is expected to create between 2,000 and 4,000 construction and permanent operational jobs, creating economic opportunities and boosting employment, according to Kleynhans.
Divercity has also brought its independently run residential property and asset manager, Ithemba Property, in-house.
Kleynhans said having in-house property management would make it much easier to attend to tenants’ needs and to manage its assets optimally.
Ilaria Benucci, head of construction and real estate at CDC Group, said the institution was committed to a long-term relationship with Divercity.
“Urban population growth and a challenging macroeconomic environment necessitates patient and long-term investments that will help close the gap between demand and supply in SA’s housing market,” she said.
“We are delighted that our investment in Divercity will support the developer to deliver rental housing that will meet the housing needs of groups within the low- and middle-income bracket. We are confident CDC’s investment will have a demonstration effect on commercial investors, ushering in greater investment into the housing sector,” said Benucci.
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