Are affordable developments profitable?

Similan, the company behind the Newinbosch development in Stellenbosch has been attracting media attention for creating affordable homes starting at R850,000. But will this concept work for other developers that want to create similar establishments?

Online complaints

The Newinbosch neighbourhood, for example, is well positioned to meet the high demand for reasonably priced secure living. The estate offers ease of access to Stellenbosch CBD and neighbouring Boland towns, but all might not be what is cracked up as internet users across online forums haven’t held back their criticisms.

The ease of access to surrounding areas might be appealing to some, whilst others have criticised the location. An online user appearing as NickSA on Skyscraper City forum said: “I also find it quite telling that this image by the developer names every nearby wine farm and estate, but conveniently ignores labelling Stellenbosch’s main township, Kayamandi, which is directly next to this development.”

“Agreed,” another user, Diabolix commented.

The location wasn’t the only point of critique NickSA pointed out. The user also commented on the aesthetic of the Village: “Pretty depressing that these Gauteng style ‘lifestyle estates’ have made their way to the Western Cape. They completely destroy the urban fabric of towns and cities.”

In response to online complaints about the new development’s location in online forums, Estate Living contacted the Similan group. The group’s business development manager, Pieter du Toit, responded:  “We are aware of the comments by NickSA and Diabolix on SkyscraperCity.com, among others. In principle, we do not react to comments and personal opinions on public forums, unless it is in response to a direct request for project information, or to address specific concerns that readers may have.”

Planning for profitability

It’s understandable that most developers, when marketing their developments want to focus on the good points. But with that comes a fine balancing act. But it’s not only the marketing of the development, and how it’s worded, that’s a concern.

Developers may need to look for cost-effective construction methods, secure financing at favourable rates, and negotiate with local authorities for subsidies or tax breaks to make the project financially viable.

But it’s still possible to be profitable. While affordable property developments may have lower profit margins compared to luxury developments, they can still be profitable if planned and executed effectively. Developers need to consider various factors to ensure the project’s success.

Here are a few:

Location: Affordable property developments in South Africa are more likely to be successful if they are located in areas where there is a high demand for housing. This could include areas close to public transport, schools, and employment opportunities.

Cost-effective construction methods: Developers need to find ways to build affordable housing units without compromising on quality. This could involve using cheaper building materials or more efficient construction methods.

Financing: Developers need to secure financing at favourable rates to make affordable property development financially viable. This could include accessing government subsidies or partnering with financial institutions to provide affordable financing options to potential buyers.

Target market: Developers need to understand the needs and preferences of the target market and design properties that are attractive and affordable. This could involve designing smaller, more efficient units or including features that are important to the target market, such as security or access to communal facilities.

There are plenty of other examples of developments in South Africa that have used a similar approach to the Newinbosch development.
Here are a few:

• In addition to more than 8,000 affordable dwelling units, Fleurhof in Johannesburg also has retail and office space. The development is a desirable option for low- to middle-income families due to its proximity to employment opportunities and public transportation.
• Almost 800 affordable housing apartments are part of the Summer Rain Private Estate in Pretoria, which also offers shared amenities like a clubhouse and a swimming pool. Solar geysers and low-flow showerheads are among the environmentally friendly aspects of the development.
• In addition to more than 15,000 affordable housing units, Sky City in Johannesburg also has a school, a clinic, and retail establishments. The neighbourhood features green spaces and recreational areas and it is also bike and pedestrian friendly.

The trade-off

Trade-offs might need to be made for developments to be affordable. Proximity to townships may be unavoidable especially as the population expands. It may mean that not everyone is won over by every feature and aspect of the development. But perhaps this is the trade-off that developers must make when catering to the lower end of the market.