Government-supported Social Housing in South Africa
with Rooftop Solar Electricity and Hot running Water
Invest in low to middle income housing,
with rooftop solar power generation and solar water heating,
investing R280-1,230 million ($20-88 million) over four years,
earning returns of over 15% IRR and 2× MOI
South Africa lacks formal housing for about ten million people (out of a population of 55 million), which requires over two million additional modern lower-income housing units with electricity and hot running water. The Government is addressing this shortage through the Social Housing Regulatory Authority (“SHRA”), with a program (the “Program”) of a million new one or two bedroom rental units for low-income tenants (the “Housing”) over 5-7 years. President Ramaphosa personally mandated the delivery of these one million housing units and the Government has funded SHRA accordingly.
The SHRA qualifies private companies as Other Delivery Agents (“ODAs”) to construct, own, maintain and rent out Housing to qualifying tenants. The SHRA has established criteria and monitoring mechanisms for ODAs, the Housing, and the income levels of qualifying tenants. Over 50,000 such SHRA units have already been constructed and occupied, with effectively no rent payment arrears.
The SHRA provides grant funding of R271,867 ($19,419 ) per unit, about 70% of the cost of project development and construction. The developer funds the remaining cost, owns the project outright and can pledge it as security to raise funding.
The development partner for this proposal is The Housing Hub (“THH”), an experienced builder of low-income homes in South Africa. THH has built over 50,000 housing units over its 30 years of operation, and is accredited by the SHRA as an ODA, allowed to unlock or liquidate its investment in order to attract new funding. THH has thirteen Projects at various stages of development, totalling over 10,000 units, with an aggregate cost of about $296 million (R4.2 billion).
THH requires about $ 88 million to fund its share of the cost of its Projects (about 30%), to unlock the grant funding (about 70%). It seeks $20 million (R280 million) over two years for its next five projects of about 2,600 homes, then the remaining $68 million over two years at the option of the investor.
The investment program is easily scalable and can be expanded further by providing funding to other developers in addition to THH, as the entire SHRA Program requires $9 billion of private capital.
Project rentals are steady, long-term cashflows linked to inflation, attractive to long-term investors such as insurance companies and pension funds. The projects could be securitised as bonds or listed as Real Estate Investment Trusts on the Johannesburg Stock Exchange, providing investors with liquidity and an exit.
This presentation describes alternative structures available to investors, in the form of debt and/or equity, denominated in ZAR and/or USD.
All aspects of the transaction are denominated in South African Rand. U.S. Dollars are shown for information purposes, converted at ZAR 14 = $1.00