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BIG ISSUE Social housing Words | Adrian Bishop

Fixing up the world’s slums, casa by casa

Property developers don’t always get a good press, but building social housing is one way to keep the local people – and investors – very happy

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ome overseas property developers, agents and investors want to do more than simply make money – they also want to make a difference by ensuring that some of the poorest people in the world have the chance to own a decent home. The demand for social and affordable homes around the world is huge, even in some of the wealthier countries. Scott Anderson, Managing Editor of the NextBillion development and enterprise website (nextbillion.com) says the issue has a truly wide scope: “It’s hard to find a topic more complex and yet more

relevant to poverty alleviation than affordable housing.” And the business opportunities

It’s hard to find a topic more complex yet more relevant to poverty alleviation than affordable housing are also massive – possibly trillions of dollars, says Bill Drayton, founder of the Ashoka organisation

that teamed up with NextBillion to produce The Global Spread of Affordable Housing ebook. “If a billion people are shut out of the formal housing market, what would it mean to your business if you could unlock the potential of that trillion dollar market?” he asks. “If you add up the building materials to be produced, distributed and sold, the loans and interests on mortgages, improvements and construction deals, the jobs and income generated, the land purchased, infrastructure and public services build – all the related products and services to meet the


APRIL 2014 those who invest in these types of projects. You also get to make a difference to people’s lives and profit at the same time.” Another sector specialist, Graham Russell, has seen social housing in Australia and the UK. Mr Russell is Chairman of the UK-based Elim Housing, and has written a report on the Value of Investing in Social Housing in both countries for the Winston Churchill Memorial Trust. Elim Housing uses a significant proportion of its housing stock to provide support services, as well as housing. Similar organisations in Australia include St Bartholomew’s House, in Perth, and Common Ground, in Adelaide. “There are much bigger housing associations in the UK than in Australia with some having in excess of 80,000 units of accommodation. In Australia there are many smaller housing associations but the sector is seeing more mergers and acquisitions as economies of scale become more of a competitive advantage,” he explains.

Governments bow out affordable housing deficit globally, it amounts to a multi-trillion dollar opportunity for multiple areas of employment and economic growth.”

my house, my life

Governments have been less inclined to finance social housing, leaving it to the private sector have a ready-made client base that will buy a product accessible to their budget. This is a hands-free investment with typical guaranteed annual returns at 24% over 24 months. Minha Casa Minha Vida (MCMV) is a seriously exciting area with some serious returns for

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Governments around the world differ in the way the affordable housing sector is financed. Some subsidise it more centrally while others believe institutional and private investors should provide the capital and benefit from the rewards, as well as shouldering any risk. The sector can offer high returns for investors. For instance, Brazilian affordable housing, through the Government-based Minha Casa, Minha Vida (My House, My Life) programme, which seeks to build millions of homes for low earners and prevent the growth of favela slum areas, offers a simple route into the market and ‘serious returns’, says property investment specialist, Colordarcy.

Sector expert, Brett Tudor says, “For investors, this is a way into the Brazilian market that is very simple to understand. There are no bubbles, as the price of property is fixed at a level people can afford and homes are sold only to those in the local community. You also

Following the global financial crisis, governments have been less inclined to finance social housing and have largely left it to the private sector. Fresh solutions are needed, Mr Russell tells OPP: “Clearly, governments have a fundamental responsibility to ensure that their people are housed to agreed standards, but, typically, they are now less inclined to be the main investor, preferring to look to the private sector first and then to the not-for-profit housing sector to deliver housing.” Affordable housing ratios vary considerably around the world. In Scotland, social housing accounts for more than 33% of the total stock and in England it is around 20%, but in Canada the figure is nearer 6% and in Australia, 5%. But the cost of not providing adequate affordable housing can be great too, he argues. “The severe consequences can be homelessness and overcrowding (on any given night in Australia one in 200 people are homeless) or

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BIG ISSUE Social housing

Affordable housing from St George Community Housing, in Sydney

HOMEOWNERS’ DREAMS COME TRUE

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satisfied about build quality and the progress of the project.

Impact investing Finance, funding and profitability are key issues for the sector. Institutional investors have coined the term ‘impact investing’ that refers to various market sectors, including affordable housing, which have the potential of generating market returns while addressing key social and environmental challenges. But the sector is struggling to meet expectations. Last autumn, World Economic Forum data suggested capital of less than US$40billion had been committed to impact investments and “aggressive growth” is needed to meet a 2020 market projection of more than $500billion. Developers of affordable housing schemes can face financial challenges, says Brazilian property expert, Ruban Selvanayagam, and one temptation is to cut costs, resulting in inadequate sites and poor-quality workmanship. He tells OPP: “While there is the major advantage of huge demand, the main risk comes down to cost. Social housing needs to be priced low to fit accordingly with the household budget limits of the market segment. This often results in constructors compromising on quality standards and housing units being in bad locations (with poor access to essential infrastructure and public services) subsequently producing unsustainable

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they can manifest as poor health, a withdrawal from community and relationship breakdown, all of which have potentially high costs on the state.” With growing pressure on the private rented sector, new economic solutions are need for affordable housing. Among fresh approaches in the UK is an increased use of bonds and some larger housing associations have raised tens of millions of pounds through 25-year bond issues, which provide a good level of return, he says. The sector offers two main benefits, for investors. “Firstly, to secure a healthy return on investment and which is comparable with other lower risk market opportunities. Secondly, it provides the opportunity to support the development of much-needed affordable housing at a time when there is a strong demand,” says Mr Russell. There are also risks to investing. “Essentially, social housing provides an asset-backed investment opportunity. The key risk mitigation is to ensure that both the balance sheet and the profit and loss of the particular housing association can support the private sector investment and deliver the agreed return.” But some social housing developers offer protection for investors through an escrow account, which is overseen by a lawyer who only releases funds to the developer once they are

Buying their own home has led to one couple’s dreams coming true – not once, but twice. For Daliane Gilvaneide and Paulo Henrique, owning a Minha Casa, Minha Vida home at EcoHouse’s Acro Iris development, near Natal, North East Brazil, fulfilled a lifetime’s ambition and means they can get married. In June 2013, they were first to move into a new two-bedroom, 55-square metre home at Arco Iris, in Ceará Mirim, EcoHouse’s first affordable housing community. Daliane says, “It is an immense joy and has been a lifetime desire for us to own our own home. EcoHouse has made our dreams come true. Now we can get married! The house is wonderful it’s a dream come true!” Paulo says, “I have such a sense of excitement. Everyone wants to have their own home, be a family. It is sad to always have to rent, and with this house we are taking today – although we are paying a mortgage to Banco de Brasil – we are paying towards what is ours.” Gabriela Medeiros, Head of EcoHouse Brazil Operations, says it is an honour to provide homes for Brazilians. “EcoHouse always constructs the best, thinking of comfort and quality of life. The workmanship and materials used in housing units are topnotch. We are happy to be able to realize the dreams of many families.” Demand from purchasers was so high that all Arco Iris homes were pre-sold before completion. Funding for the project was provided by private investors who received annual returns of 20%.

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BIG ISSUE Social housing communities that represent little convincing transformation in living standards. This also diminishes the investment attractiveness of the segment as a whole.” Mr Selvanayagam is the commercial director of the Fez Tá Pronto Construction System, which deploys a fully recyclable gypsum plaster block and a copyrighted building system. This has been used to build high-quality, environmentally-friendly affordable homes that cost at least 40% less to build than standard materials. With previous projects financed by the country’s leading financial institutions, the company is aiming to fully integrate the system into the marketplace, principally via Minha Casa, Minha Vida.

Questionable consensus Thanks to international pressure and a greater will from governments, the sector has made progress, although in Brazil, the effect on the poorest sector is yet to be seen, Mr Selvanayagam says. “In Latin America, for example, while the various state social housing initiatives are by no means operating efficiently, they certainly are a step in the right direction. Nonetheless, the mainstream developers still only want to work in the middle-upper income sectors due to a questionable consensus that margins are better. Out of the 16 developers on the Brazilian stock exchange (Bovespa), for example, not one has projects directed to the

lowest income groups (despite the huge demand).” The problem, Mr Selvanayagam believes, is a lack of holistic thinking. “Urban development has become based on profits and not what is actually sustainable. Sure, there are some interesting projects that take into consideration environmental protection amongst other sustainability-related factors – but the lowest income groups (who form the majority) have very little chance of acquiring such a home, creating a very segregated marketplace. There needs to be a major paradigm shift away from the idea of building simple houses in the distant peripheries with inferior infrastructure and public services.” In some countries, the affordable housing sector faces particularly severe challenges. In Mexico, even though a third of the population in the southern state of Chiapas are in extreme poverty, they refuse to live in state-provided (and internationally financed) homes, as they are dilapidated and let in the wind and rain. In the La Trinidad suburb in Zumpango, homes from the Ciudades Bicentenario – a failed government project launched in 2007 to improve subsidised housing in Mexico – lie disused and empty. Across the whole of Mexico there are 330,000 “abandoned houses” that are vacated, unpaid for, and in a deteriorated state, says the Urban Development Ministry.

The favela may look nice from afar but up close conditions are challenging

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Indian-based social housing specialist Brick Eagle is aiming to develop one million homes by 2030 – and it’s not the only one. In Egypt, Arabtec Holding, Dubai’s largest listed construction firm, has agreed to help the Egyptian army build one million houses in a project worth EGP£280billion (US$40billion). Brick Eagle’s private equity arm, Brick Eagle Capital Advisory, is aiming to raise US$100million to invest in land for affordable housing projects. In 2014 it aims to buy 1,000 areas of land and house more than 70,000 families in the next five to seven years,” says CEO, Rajesh Krishnan. “Mumbai remains key focus area for our investments in 2014. The city currently needs over 2.5million affordable homes and we hope to address at least one per cent of this demand through our investments,” he says. The funds will be routed through Brick Eagle’s Singapore. Brick Eagle currently manages over 30m square feet of affordable housing project. The Arabetc affordable homes project is one of the biggest in the region, covering 160 million square metres across 13 sites. Work is expected to begin in Q3 2014 and be completed before 2020. Hasan Ismaik, Arabtec’s Chief Executive told Reuters the land will be given for free and around 40 banks in Egypt will offer finance to homebuyers on limited income.

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Fixing up the world´s slums casa by casa opp magazine  

An article addressing issues surrounding the global social housing sector, published in April 2014´s Overseas Property Professional (OPP) ma...

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