GOVERNMENT'S proposal that 20% of new residential property developments be set aside for low-cost housing has raised a number of questions and challenges for developers.

Although nothing has been set in stone yet on what percentage should be set aside in new developments, developers have highlighted that any proposals along these lines could create additional problems for developers who are already having their profit margins squeezed.

At last week's plenary session on the social contract for rapid housing delivery hosted by the housing department in Kempton Park, Thozamile Botha, advisor to housing minister Lindiwe Sisulu, said that one of the issues raised at a housing indaba in Cape Town in September last year was this proposal that 20% of new developments be set aside for low-cost housing.

The proposal hopes to integrate South African communities alienated economically and geographically by apartheid.

But Botha said not all issues raised in Cape Town had been resolved and one of these was this 20% proposal.

He also said research was conducted by both government and commercial property association Sapoa, which looked at different countries and how this principle was implemented there.

"It has not yet been resolved how the 20% rule should be implemented. Everyone has asked if we are talking about 20% of the cost of the development, or 20% of the actual land. Or does it mean that if there are 200 stands in a development must 40 be be made available for affordable housing," said Botha.

Chris Renecle, a director of Johannesburg-based developer Renprop, says while government wants to integrate communities with this proposal there there a number of problems that lie ahead.

Some of the questions raised are on what basis would these special housing units be allocated to people and at what price.

"If the developers have to do these units at a discount then that amounts to a tax, which is unfair for developers," says Renecle.

"Who are these people who would quality for these properties. How would government determine which people qualify for those units."

Another challenge is who would administer the allocation of these units.

Renecle says government's suggestion was that the local authority would administer the allocation of these units that had been set aside for low-cost housing.

But as it is local authorities are not functioning at full capacity and are not coping with rezoning and township applications.

"How are they going to cope with this," he says.

One negative affect of this proposal would be to slowdown residential developments because developers will not want to get involved with them.

"Developers do not want to take on inordinate risks," says Renecle.

If government does not incentivise developers by way of subsidies or another means to ensure they make the same profits, they will shy away from residential developments, he says.

"Profit margins are already under pressure because of increased building costs and the lack of land brought on by the long process of getting development rights approved."

Renecle says most of these new residential developments are developed on a sectional title basis and that this creates another set of problems.

It is not likely the low-income earner who obtains a low cost unit will be able to afford the regular levies owed to a body corporate.

"If they (low-income earners) can't pay will the state subsidise the levies? If the state doesn't, the solvency of bodies corporate will be put under pressure," says Renecle.

Although there have to be many more discussions between government and developers on how to tackle the problem of delivering affordable housing to people, at this stage what has been decided by developers and government is that there is a need for integration of communities.

National housing department spokesman Ndivhuwo Mabaya (SUBS: Correct) said last week the plenary assembly agreed there was a need for integration.

But it was agreed that more work would have to be done by government and developers to find a solution.

Developers are willing to participate as long as there is profit and a market for affordable housing.

Mabaya says Sapoa and government agree that integration is central to "building a South Africa that truly belongs to all".

"They all acknowledge individual developers have started allocating some form of percentage of affordable housing and they need to be encouraged," he says.

Government has agreed to cut down the time it takes to get environmental impact assessments and other approval procedures completed.

Extract from Business Day 22nd March 2006
Reports by Nick Wilson