Township property boom presents business opportunities

26th June 2015 By: Sydney Majoko

Residential property prices in the South African economy have, in general, outperformed inflation in the last couple of years.

Interestingly, though, while this growth is generally levelling off in the rest of the market, township residential property prices have confounded market conditions and continued to rise. According to property agents Property24 and FNB Homeloans, there are several reasons for this phenomenon, mostly related to affordability.

But there are other reasons for the resilience of the township residential property market. In years gone by, township property was viewed as an investment only by those who inhabited the dwellings, not outsiders. The recent realisation by big business and government that there is a ‘second economy’ in the form of the township economy has provided the impetus for the growth that we see in township property. Township property is now seen or looked at through a business eye.

Tumi Mokwena is a young township entrepreneur. He started out running a small retail business, selling meat and groceries. Over the years, he has branched out to start a successful liquor retail business. However, he has found that this business requires an extraordinary focus on little details, which he finds tiring. A couple of years ago, he bought a house and renovated it and let the rooms.

“Running a property business requires far less work than a retail business. Also, I’ve discovered that a lot of properties are currently undervalued for a variety of reasons, and one can get these houses at a bargain and turn them into accommodation for rent,” says Mokwena. He is currently contemplating ‘an exit strategy’ from the retail business to focus solely on property. People like Mokwena are the cogs in the network that ensures that township property prices growth maintains an upward trajectory.

The recent influx of foreign traders and big business in the form of Pick n Pay, Shoprite and Walmart is another contributing factor to this upward trend in the prices of township properties. Foreign traders arrive with loads of cash, looking for space to rent (mostly), and locals have realised that there is some money to be made in renting out their property or part of it to business. Competition among the traders for the best spot close to commuter routes also drives up property prices along those routes.

Big malls in the townships tend to be located on the edge of the townships, thereby providing corridors of business on the routes leading up to the mall, again creating demand from small traders along those routes.

Telecommunication giants like Vodacom, MTN and Telkom recently invested a lot in upgrading their fibre-optic network all over the country. For the township economy, this heralds a new era for the residents. This clearly shows that, in years to come, the township economy will become more mainstream, bridging the divide between the first and second economies. The emerging young middle class that hails from the township is waking up to fact that it can make an investment in the township in the form of property and still have access to the same communication networks and infrastructure within the township economy that are available elsewhere.

Government has been saddled with a housing backlog since the inception of democracy 21 years ago. A well-thought-out and coordinated plan could be implemented where township property owners who are interested in earning money from their properties could be subsidised to build what are commonly known as ‘back rooms’. With a little effort, unemployed landlords could be earning money from their properties and ease their dependence on the strained government social grant system. The unyielding housing backlog could also be reduced in a meaningful way.

One of the most frustrating aspects to starting a business in the township is the lack of a well-maintained building plan database, which should be maintained by local municipalities. In the effort to assist township dwellers in turning their properties into business, government could set up service providers who can assist interested people in drawing up these plans, thereby providing an economic boost to an entrepreneur just starting out, but also addressing the effects of the neglect that has turned most townships into shanty towns.