The MD of a firm that invests in affordable green housing projects has recalled how he was laughed at 20 years ago when he suggested affordable homes were the next growth frontier in the property market.
“I remember standing up at a South African Property Owners Association conference 20 years ago and saying the affordable housing market was going to be institutionalised — and quite honestly being laughed at,” said Rob Wesselo, group MD of International Housing Solutions (IHS).
There were even a couple of well-known property people who stood up and told me I was crazy — but it’s happened.
— Rob Wesselo, group MD of International Housing Solutions
“There were even a couple of well-known property people who stood up and told me I was crazy — but it’s happened.”
Today, more than 85% of the housing investment group’s units fall within the affordable to low- and moderate-income bracket, reflecting the broader growth of the sector.
At the 17th annual IHS Affordable Housing Conference in Johannesburg this week, Wesselo detailed the shift in mindset regarding affordable housing as an investable asset class.
“South African pension funds are investing at scale, with commitments in the billions of rand through dedicated funds and mandates,” he said.
In April the International Finance Corporation and Balwin Properties, South Africa’s largest sectional title developer, announced a R1bn funding deal to support the development of more than 14,500 affordable apartments at Balwin’s Mooikloof Smart City development in Tshwane.
The IHS conference also showcased several successful affordable housing projects in Gauteng, including:
- Cosmo Central Group’s Lion Pride in northern Johannesburg;
- IHS’s Circa in Illovo;
- Divercity Urban Property Group’s Barlow Park lifestyle estate in Sandton; and
- Zelri Properties’ Grand Central Towers in Midrand.
Wesselo explained that IHS’s portfolio had evolved from basic houses to lifestyle-orientated homes, noting that “people are choosing to live closer to jobs, with amenities like workspaces, cafes and gyms on their doorstep. That shift is now standard, and capital is responding.”
Property analyst Keillen Ndlovu said some of the main drivers behind recent growth in the affordable housing market can be put down to an accommodation shortage, especially in prime areas.
“Demand exceeds supply, especially in areas close to business activity such as offices and shopping centres, and amenities like hospitals, schools and recreational places,” he said.
Ndlovu said the weakness in the office market, especially after the Covid-19 pandemic, has allowed some developers to convert empty or struggling offices into attractive residential units since they’re centrally located in major business and transport nodes.
According to Lightstone, a private real estate investment company, properties in affordable housing areas sold faster than in other segments in 2024.
Comparing affordable rental housing to other property segments, Ndlovu said: “It’s the new emerging sector in South Africa; it’s attracting institutional interest and most of the major banks are looking to grow their exposure to this sector.”
Wesselo contrasted the new enthusiasm for low-cost homes with past hesitancy from developers: “If you go back 15 years, most of the residential developers were on the high end. Affordable housing was seen as low-end and risky. There was a perception that it wasn’t profitable, they couldn’t be profitable, that people didn’t pay their rent.”
He said the opposite was now true, with tenants in the low-end market often paying their rent more reliably than those in the upper-end segment, making affordable housing a surprisingly stable investment.
Nedbank Corporate and Investment Bank (CIB), a co-host of the conference, outlined its involvement in affordable housing financing.
The residential sector, and particularly affordable housing as a rental stock product, was one of our fastest growing segments, and has been over the last couple of years. Across well-located projects in this segment, we are now seeing occupancy rates of around 98% when the product truly meets market needs
— Vanessa Murray, divisional executive of property finance at Nedbank CIB
Vanessa Murray, divisional executive of property finance at Nedbank CIB, said: “The residential sector, and particularly affordable housing as a rental stock product, was one of our fastest growing segments, and has been over the last couple of years. Across well-located projects in this segment, we are now seeing occupancy rates of around 98% when the product truly meets market needs.”
Murray said that to effectively scale the affordable housing sector, faster planning approvals and stronger collaboration between the public and private sectors were crucial.
She mentioned multiple partnerships the banking group had concluded in this segment, which demonstrated its commitment to financing affordable housing.
Murray pointed to Nedbank CIB becoming the third major bank to join the South African Multifamily Residential Rental Association (Samrra) — an organisation advancing investments in the multifamily residential asset class. “Our membership of Samrra affirms our belief that this is a resilient investment category that warrants sustained financial innovation.”
She also highlighted accreditation efforts alongside the International Finance Corporation’s (IFC's) Edge programme, including the Mall of Africa and the bank’s first inner-city residential office conversion.
Explaining the benefit of green-certified buildings, Ndlovu said: “They have been shown to lower operating costs, particularly regarding water and energy usage. They also tend to achieve higher net operating income, better earnings growth and attract a lower capitalisation rate, which leads to higher capital growth and ultimately a higher total return for investors. Additionally, the reduced operating costs contribute to improved affordability, benefiting tenants.”
According to IHS, all its IFC Edge certified projects have a 20% lower water and energy consumption rate, which translates to financial savings for occupiers, equivalent to around one month’s bond or rental payment per year.
Wesselo said the benefits of increased affordable housing investment for consumers included more freedom to choose. “This does have a very good outcome for the end user, because the more the affordable product is out there, the better it gets, because there’s competition.”
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