Business: IHS Gets R150m Funding for Affordable Housing in SA
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Citigroup Inc. (NYSE symbol: C)
International Housing Solutions (IHS), which launched a South Africa Workforce Housing Fund with R1,7-billion in capital, has received R150-million additional investment from Citi in South Africa.
The South African Workforce Housing Fund, which is managed by IHS, was set up to invest in housing for rent and sale to low and moderate-income families to meet the growing demand for affordable housing in the country.
Soula Proxenos, MD of IHS says its global funding includes $95-million from a North American pension fund and a US foundation endowment, as well as up to $80-million in participating debt from the US Overseas Private Investment Corporation (OPIC) as well as R210-million from the Development Bank SA.
The latest investment from Citi adds further capital which could fund an estimated 30 000 homes in South Africa.
Donna Oosthuyse of Citi says the funding is for equity financing in South African projects in areas where gaps or backlogs in economic development and job creation have not been adequately addressed by financial institutions and is part of the group’s commitment to empowerment in South Africa.
“By joining hands with IHS we can assist in various roles of financier, advisor, partner, implementer and integrator and help mobilise finance and expertise for development projects that are aligned with the intent of the of the Financial Sector Charter.”
Citi opened its branch in South Africa in 1995 and has grown to be South Africa’s sixth largest bank by assets. Its business in South Africa is focused on corporate and investment banking and institutional brokerage. This forms part of Citi’s emerging markets business, which is an area of focus for the firm.
“We are proud to be associated with this project which we believe is well positioned to address the critical shortage of housing for small to medium income families in South Africa,” said Oosthuyse. “We are confident that we have invested with premier partners that will successfully fulfill the fund’s mission and strategy.”
IHS took a foothold in South Africa a year ago and works directly with owners and property developers, focusing on providing homes for the “missing middle” families who earn too much to qualify for government-funded housing, but struggle to find adequate affordable, either for purchase or rental.
IHS won major acclaim when, after an extremely competitive process, it received funds from the US Overseas Private Investment Corporation (OPIC) to create its leveraged fund to finance affordable housing projects in South Africa in the face of major competitive bids.
Elize Stroebel, Country Director of IHS SA, says South African based developers have had difficulties in obtaining equity finance to make large-scale affordable housing developments viable – for both themselves and home buyers. “This has acted as a big impediment to the involvement of the private sector in affordable housing.
“To bridge this gap, IHS involves equity investors, amongst others. We are committing our own capital, as well as that of international and domestic investors like DBSA and Citi, to help finance affordable housing projects in the form of equity,” she says.
Stroebel says the downturn in the property cycle has created excellent opportunities for low income housing.
“We have a number of fantastic developments underway including the Greatermans rental project in downtown Jozi which is set to launch soon, as well as projects in Springvalley in Pretoria and Carnival City in Gauteng which are both set to come on stream in the next few months.
Stroebel says equity investments in housing projects are relatively new in South Africa, as most funders provide debt based instruments to projects.
“IHS is different in that it provides the majority of the equity needed in a development deal. Simply put, this is the total cost of the project less the portion that will be funded by debt. This is generally provided by commercial banks.”
In addition, the IHS group’s global experience in the sector and its understanding of what it takes to make these investments work, has added to its appeal as a development partner.
“We have no doubt that the fund will play a major role in spurring economic and housing development in South Africa,” concludes Stroebel.
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