Township property development is a force to be reckoned with when it comes to changing poor communities into thriving economic centres. Township property development offers prospects for low-cost housing, commercial nodes, and local entrepreneurship, which fuels job generation and long-term economic integration. While the potential is immense, the challenge is much higher, in the form of township property development funding.
Next, we experience the greatest challenges that confront developers in township settings and the innovative solutions that allow one to access sustainable commercial property development finance.
- Availability of Capital
The most important of these is access to capital. Banks and conventional lenders perceive township developments as risky ventures because of issues such as informal land ownership, low return perceived by them, and inadequate infrastructure planning.
Most of the new developers do not have access to the tight financing terms offered by financial institutions, like comprehensive financial back-up, history, and collateral. This is one area of finance shortage that disproportionately hurts black-owned or maiden property development ventures, exactly the type of developers most involved in township environments.
- Formal Infrastructure and Zoning Problems
Most townships were once underdeveloped or beyond the mainstream urban development. Some of the basic infrastructure, like roads, sanitation, water supply, and electricity, might be lacking or irregularly distributed.
Furthermore, land within some of these locations might not be zoned for mixed-use or higher-density development, which restricts the type of projects that are allowed on a legal basis. That is slower and more expensive for developers to deal with cumbersome rezoning or land-use processes.
These problems have a direct impact on the viability of projects and their attractiveness to traditional commercial real estate development finance providers.
- Market Uncertainty and Risk Perception
Although township economies are thriving and dynamic, they are cash-based and informal economies, and it is not easy for developers to come up with hard facts of rental yields or market demand. Official lease agreements and projections are highly reliant on financial institutions, and these may not be readily available at all times in such environments.
This lack of official measurements promotes a perception of higher risk, thereby discouraging private sector investors and limiting township property development finance from conventional sources.
- Skills Gap Among New Developers
Another critical hurdle is the gap in experience. Most township-based business people are eager to develop their towns but lack formal education in property development, financial modelling, or regulatory compliance. The lack of knowledge often keeps them from getting access to bigger-scale funding property development options, regardless of good project ideas.
Absent guidance or technical support, developers are prone to stumble on planning permission, cost calculations, or bank requirements, which can ruin even carefully conceived projects.
- Scalability and Project Pipeline Constraints
Even if one project is a success, it isn’t easy to scale it up to numerous townships. Projects are operated project-by-project with small working capital, which does not allow for the development of a stable pipeline.
Inability to generate stable sources of funding and longer-term partnerships hinders expansion on a sustainable scale. It becomes difficult for township developers to achieve the level of professionalisation that would make them attractive to large institutional investors or be part of urban development strategies at scale.
Solutions: Township Property Development Fund Options
While there are sophisticated problems, there are developing solutions appropriately tailored for township property development finance.
- Targeted Development Funds and Facilities
Specialised township property development funding is filling up the gap in financing more and more. They target high-impact, community-level initiatives and provide flexible terms of lending that are well adapted to the realities of township development. They do not use conventional measures of project viability, nor do they merely provide capital; they also provide mentorship.
Some of the institutions facilitate the connection between township entrepreneurship and formal property development, with individuals and groups making use of township areas and turning them into income-generating properties.
- Blended Finance Models
Blended finance, a combination of concessional development finance institution financing and commercial funding, provides another option. These arrangements de-risk township developments for private financiers, and therefore, they are more inclined to provide funding for them.
For developers, this means more easily available commercial property development finance on more appropriate terms aligned to local market conditions.
- Capacity Building and Technical Support
Other than financing, support must be provided in the form of technical assistance to inexperienced developers. Mentorship schemes, property finance and construction management training, and regulatory advice assistance all enhance the potential for success of a project.
Capacity development projects can help passion-driven entrepreneurs become fully-fledged developers capable of expanding their activities.
Conclusion
Township property development is critical to creating inclusive, resilient cities and needs innovative funding and strategic intervention. Developers require bespoke financial solutions that recognise their circumstances.
TUHF Group, in the creation of the uMaStandi Fund, has attracted more than R125 million, enabling entrepreneurs to fund and manage quality rental residential and mixed-use property, proving township property development funding is a scalable, viable solution to urban expansion. Find out more at TUHF.
