Trust for Urban Housing Finance - TUHF for tough times

Johannesburg inner city has some unlikely moguls-in-waiting. A new generation of inner-city property entrepreneurs is emerging in a market where traditional financiers are still wary of mortgage lending.

The Trust for Urban Housing Finance (Tuhf) has made its mission the development of wealth through funding property portfolios in suburbs that are often red-lined by banks. And the profile of its borrowers is not what you might expect.

Tuhf head Paul Jackson says there are three groups of potential landlords who frequently approach the trust. One group is African expatriates from Zimbabwe , Malawi , Mozambique and even the Democratic Republic of Congo. Established property owners with large- scale portfolios is another.

But the most unexpected group of entrepreneurs consists of middle-aged black women who are slowly but surely building up portfolios of sectional title units in the inner city. Typically working as nurses or social workers, these entrepreneurs are creating their own, well-managed property empires.

“Usually, these women own and let units in the complexes where they themselves live, ensuring hands-on management and a firm commitment to the local community,” says Jackson . He emphasises that Tuhf won't fund the purchase of sectional title units unless the investor has .a controlling stake in the body corporate. Many of these women do.

He cites one investor, Patience Nongcantsi, who has built up a portfolio of 12 units in her complex of 20. And the trust takes a dim view of defaulters. “We live up to our acronym — we're tough,” stresses Jackson .

Tuhf uses a system of progressive lending with unknown investors. Though the collateral requirement is 20% of the purchase price, the trust will fund up to lO0% of refurbishments. Furthermore, it will lend only in four designated suburbs: Joubert Park, Berea , Hillbrow and Yeoville.

What may come as a surprise, given its target areas, is that Tuhf doesn't price for risk. Financing is approved at a non- negotiable interest rate of prime plus one percentage point, and investors are expected to provide full personal surety. “We don't finance investments with an initial yield of less than 20%,” says Jackson .

As analysts point out, that's a far cry from the typical yields of 10% on commercial properties in prime locations. But commercial banks contend that they do lend in inner-city suburbs; there has just been a lack of demand. First National Bank Home loans CEO Ed Grondel says the inner-city residential sector is “by volume, very small”, but confirms that if the market became significant, the bank would certainly look at greater innovation. Bankers remark that the sharp decline in interest rates has dented the buy-to-let market, which could affect the credit assessment of applicants in this category.

Banks are also quick to point out that they judge individual mortgage applications on merit, and avoid a one-size- fits-all, generic approach.

“FNB does not red-line,” says Grondel. “We consider the profile of the client, the property quality and its potential for capital growth when making the lending decision.”

Housing specialist Alison Wilson says there are other avenues of funding available, too. The Gauteng Partnership Fund, which aims to entice capital market investment in social housing, is one example. The National Urban Regeneration Agency, an end-user financier, is another. As Wilson points out, making housing finance more available is the basis for inner-city revitalisation.