SA Affordable Housing July / August 2017 // Issue: 65 | Page 26

FEATURES
Financing an affordable
housing project: how it’s done
Sourcing funding to address those who don’t qualify for bonds or
RDP housing can be challenging. We find out from developers and
investors how they have fared so far.
By Ntsako Khosa
A profitable financial model is what investors look to finance a housing development. Image: Synergy Commercial Finance
COMPLEXITIES IN FINDING INVESTORS
“Each project is unique, we put together a feasibility
report,” says Live Easy co-founder, Jeffery Froom. The
report includes detailed descriptions of what the
developer aims to do, for example, number of units, cost
per unit, land costs, estimated rent income and
operating expenses.
“So, we’d take that and hopefully come up with a
profitable outcome,” says Froom. The outcome may or may
not be attractive to an investor. “A track record of being a
developer must also be supplied,” he says.
For any potential investor questions like is there a
market for it, will people pay – are some of the things that
they look for when investing. “Proving the project can be
the hard part,” he says.
Froom and his partner, James Huff, form the partnership
whose brainchild is the nano unit complex that is located in
Kew, near Alexander and Sandton. Sourcing funding for
their project was particularly difficult as the project is the
first of its kind in the affordable housing market. To prove
to the bank that their project works, they rolled out the
units in a phased approach. A phased approach is where
the developer and the bank agree to have half of the funds
to build the project so as to see the preliminary return of
investment. Depending on the amount invested, units will
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JULY - AUGUST 2017
AFFORDABLE
SA HOUSING
be built and rented out. “After a few months you can see it
actually working, then you can ask for more funding,”
he says.
Sourcing an investor for development projects isn’t an
easy task. Froom says that it all boils down to researching
and networking. “Reading magazines and newspapers in
the financial market to find out which are the companies in
the property market, developers, which are the banks
funding developers and so on,” he says.
INVESTOR RELATIONS
The affordable housing sector receives a lot more attention
than it used to. Many developers are using or implementing
new models which can make investors weary. “Anything
new is difficult for investors to understand. A new concept
creates doubt and worry as it has no track record, you may
believe in it as an entrepreneur but you have to convince
your investor which can be challenging,” says Froom.
Renting out, rent-to-buy or mortgage bonds are some of
the options available for potential homeowners.
Depending on the kind of ownership the developers are
selling to citizens, they may or may not have buy-in from
the banks.
See more on page 26.