By Rory Macnamara
SA Affordable Housing put some questions to Michael, who is not only a property developer, but also chairman of the SA Affordable Residential Developer’s Association.
Can you provide some insight into your early career and work life?
I studied Law and became an attorney. After exposure to all the disciplines in Law I found that property was the field that most interested me. I started to focus on conveyancing and property-related matters. I took a keen interest in developments and one thing led to another.
What inspired you to follow this path in property development – your role models and/or Mentors and inspirations?
My family was in construction and I would find myself working on building sites as a young boy during school holidays. I always took an interest in the plans and designs of the new houses about to start and loved the fact that something tangible was taking shape on an empty piece of land. My inspiration came from wanting to deliver quality houses – not merely houses but also a home and livelihood to the new homeowner and his family, benefitting generations to come.
What experiences do you have in mentoring others, and what is your view of the experience?
Several people who started out their careers and worked for me over the years have either built their own homes, are running the construction of mega structures, have their own marketing companies or are employed at large financial institutions.
What mistakes have you made in your career, and what did you learn from it/them?
In 1996 I started out as a small top structure developer. To increase our delivery, we commenced the construction of houses as soon as the client signed the transfer and bond documents, believing that the transaction was now bankable and inevitable. We would complete a house within 4-5 weeks and by the time the property registered the house was ready for handover. The events that followed with rising interest rates in 1997/8 caused the whole market to crash and banks went insolvent. All the transactions in the deeds office were withdrawn and we even struggled to get payment for the properties that were registered.
My company was exposed and not one of the clients could get a bond from another bank. We suddenly had over 50 completed houses without buyers. I learned that nothing is certain in our industry and you must always mitigate your risk. Very much like the position we find ourselves in now with Covid-19. No one would have guessed that the whole world was going to come to a standstill.
Describe the highlights of your career in terms of projects and why they were highlights?
My favourite project is probably a joint venture with the Krugersdorp Town Council (now Mogale) where they service erven in Kagiso and allocated erven to top structure developers to package, sell and build new houses. This was a beautiful success story of PPP where the Council made serviced land available without the hunt for profit, enabling small emerging developers to deliver a truly affordable house. We sold a 50m² house for R50k in 1997 and they are now worth over R600k. Just proof of the value of a house as an investment class.
What are the major challenges you have faced in your career? How have you overcome them and what learnings did you get from them?
Every decade the property and development industry faces a challenge created by over-optimism and often the abuse of investor sentiment that leads to a property bubble. This normally results in a price correction that severely affects the market. It also affects the buyers’ and banks’ willingness/unwillingness to lend. As a developer you always must ensure that you buy land at the right price and do not get carried away with the ‘Bull Run’.
In these markets, landowners tend to want too much for their land or even get so greedy that they become developers. Although there have been some exceptions, this generally ends up in ‘properties in distress’.
Secondly, make sure you have a willing local authority with services available. Some local authorities do not understand the sustainability and essential economic growth that developments bring to their town or city. Developing in such areas will cause endless delays and pressure on the developer to stay in business.
Describe some achievements in your career that you are proud of.
I have been involved in many aspects of development and have had many highlights. Here are a few of my favourites:
In my first development attempt in 1996, I was very focused on the upliftment of the local community. In Bekkersdal I embarked on training some of the local women at the community centre on how to get involved in the business of property. I held classes on all the possible business ventures in property and taught them the basics of buying, selling, and calculating affordability of potential buyers. Obtaining this knowledge gave those women such a feeling of empowerment and it opened their eyes to further possibilities.
I was also involved in the conceptualisation of the Euphoria Golf Estate and convinced the developer to change the layout of the course so that the 9th and 18th holes finish in front of the clubhouse. I furthermore, suggested that they approach the acclaimed woman golfer, Annika Sorenstam, who became the first woman to be the signature of a golf course in the world.
I have been involved in many distressed developments and to see them transform into sustainable uplifting communities are always very satisfying.
I also ran a marketing campaign for an affordable development where we sold 1 200 bankable sales in four months. This campaign was even featured on the ‘Egoli’ TV series.
Could you relay an important project you have worked on, and your specific contribution that made a difference?
I have consulted and done due diligence for properties in distress, changing the concept and taking it through to completion and the delivery of such developments and estates. These are now successful developments and I would rather refrain from naming them.
Could you explain the latest trends in financing of affordable developments?
I believe that we ran out of ideas and appetite for risk in the financing of developments. The time frame from acquiring a piece of land to getting the approvals in place take all emerging developers out of the market. They just cannot afford to let capital ‘lie’ for that long without generating income. The same elongated process to get land approved causes developers who survive this process to rather ‘mine’ their own stock. The availability of serviced erven is now very limited due to the slow approval rate, causing small emerging contractors to become an extinct species. Not a very good position for the future.
With the trend of higher densification and the centralising of developments, the structure will increasingly move towards sectional title, which demands huge amounts of money for delivery (even for small developments) and our financial institutions are not big enough to provide the need to deliver housing for such a growing market. Our developers of large sectional title lifestyle villages acquire very expensive private funding. This will also cause a slowdown in delivery.
Could you explain the latest trends in the design of affordable housing – particularly integrated developments and greater densification?
There is an increasing demand for centralised development where people do not stay far away from work opportunities. Our relatively poor transport infrastructure makes distance travelling from home to work unsustainable. There is an increasing demand for security where both parents work, and they need to know that their children are in a safe environment. There is also a demand for smart living where there is necessary infrastructure for affordable internet connection, electricity and water saving measures to reduce the monthly costs.
What do you aim to achieve at the association and what activities is it currently involved in?
SAARDA will increase our effort to intensify local government awareness that the future sustainability of the Town depends on housing and community development. This drives the economy, growth, employment, infrastructure, education standards and ultimately the housing need. Red tape, together with the lack of decision-making within local authorities, have already marred the delivery of housing in the foreseeable future. We need a drastic change in strategy to expedite approvals.
Government departments need to understand and become aware of the importance of their integrated role and the fundamental part they play in the delivery of housing. Everyone in the process is of great value and it takes a collaborated commitment to deliver a house from the acquisition of a piece of land, through the approval process, services, plans, construction, NHBRC, rates clearances, deeds office and so on. One reluctant party delays delivery and places the livelihood and employment of thousands at risk.
The NHBRC has long been the so-called ‘consumer protector’ and yet have failed to assist the consumers where it was necessary. They have built up a fund worth billions where the monthly interest exceeds the new enrolments, and yet they have not executed their mandate to rate builders for lower enrolment fees according to a risk profile. The future role of the NHBRC needs to be defined to protect the industry, namely consumer and builder alike.
What is your view of the current state of affordable housing sector and what do you imagine it will look like in five years?
The affordable housing sector was under pressure prior to Covid-19 due to limited opportunities as a result of a slow approval rate and high cost of funding. Post-Covid, we will be seeing a number of those involved in affordable housing under huge pressure. The builders are working, but the money does not flow as government is not taking responsibility to get the process going. At this rate, the industry will lose many emerging contractors, possibly a generation that would potentially have been the ‘large developers’ in five years. National government announced that they will be investing billions in the delivery of infrastructure and housing, and we trust that this will include the private sector. This could be the lifeline the industry needs in the next five years.
What advice do you have for developers to make developments more affordable?
Buy your land at the right price. In the words of Robert Kiyosaki, “You don’t make money when you sell property, but when you buy it.”