Empowering backyard shack owners
Innovative financing initiatives are seeking to provide more inclusive credit to entrepreneurial homeowners. Partnering with social enterprise Bitprop, Xoliswa Sidinile (40) went from an RDP homeowner to a subsistence landlord with a goal to expand her properties. Her story illustrates how, by helping individuals navigate the regulatory landscape and access finance, the state and the private sector can contribute to a positive development trend and better living conditions in South Africa’s townships. By Andrea Teagle
Music followed Xoliswa Sidinile as she strode out of her front door, a black and brown dog at her side. It was a warm December afternoon, and her teenage son was home for the school holidays. Behind the house rose a new, two-storey rental unit, painted the same rose pink as the main house. The windows were open and washing hung on a line outside to dry. One of Sidinile’s tenants appeared in her doorway, and Sidinile waved.
“I didn’t have funds to build the flats,” recalled Sidinile, who is a domestic worker in Cape Town. According to research by the HSRC’s Andreas Scheba and Ivan Turok, prospects for upgrading backyard shacks are limited for many low-income homeowners, despite widespread recognition of the benefits of more durable structures. Some can borrow money. Others, like Sidinile’s neighbour, simply rent out shacks. According to Sidinile, shacks can be rented for R600 a month, plus electricity.
Upgrading these structures to solid, decent rental units requires state support to ensure more sustainable housing and better township environments.
“We need to look at more inclusive financing mechanisms that widen the net for homeowners and developers who want to engage and build better rental accommodation,” said Scheba at a backyard real estate webinar in December. “Ideally, those financing options need to be low cost and low risk, and also come with technical and management support to assist homeowners and developers to, for example, meet basic compliance requirements, and formalise and ensure basic health and safety.”
When Sidinile expressed interest in building backyard flats, her employer put her in contact with Bitprop co-founder Claire du Trevou. Cape Town-based Bitprop is one of the few private initiatives filling the financing and expertise gap in backyard real estate. (Others include Isiduli, TM Group and After 12.)
Bitprop’s business model grants credit based on the earning potential of land, rather than on the income of developers, explained Du Trevou at the webinar. The enterprise manages the process on behalf of homeowners, from drawing up building plans, getting building approval, and subsequently managing the cashflow. To date, the start-up has built 34 flats across 6 properties, with a plan to upscale.
Unlocking capital in land
In addition to widening the net of who can access finance, this type of model also benefits homeowners by transferring some of the risk to the financer. Because Bitprop makes its money by deducting part of the rental over a fixed period, it has a direct incentive to ensure that the homeowners are successful in finding tenants and maintaining good working relations.
“What we’re piloting at the moment is [that] the capital amount is taken over by a financial institution, like a bank ... and it becomes a traditional home loan with the homeowner and then the homeowner settles with Britpop,” Du Trevou said.
Once Sidinile had been approved, she and Bitprop agreed to divide the new building into three small units, because Sidinile reasoned they would be easier to rent out. It was the right decision: although the rates are still high for Khayelitsha (R2 100 each), Bitprop and Sidinile quickly found tenants through social media advertising.
“Even now, there are people coming and asking [if the flats are available],” Sidinile said. Studies in other parts of the country reflect this experience. In their research conducted in Delft South and Masiphumelele in Cape Town, Scheba and Turok found that all participants quickly rented out space. The commercialisation of backyard units reflects and contributes to improved socioeconomic conditions, they write.
Navigating building regulations
In the absence of this kind of support, navigating regulations is challenging. Also speaking at the webinar, the City of Cape Town’s Charles Rudman, from the Spatial Planning and Environment Portfolio Committee, said there was a need for extensive public and community education around the National Building Regulations, and the value-add of abiding by regulations. Zama Mgwatyu of the not-for-profit Development Action Group noted a backlog in title deeds from the government’s side. He also suggested that the role of the National Home Builders Registration Council (NHBRC) be redefined. “The regulations laid out by the NHBRC are not supportive of this particular sector.”
Jak Koseff, from the Office of the Premier, Gauteng Provincial Government, stressed that officials needed to be repositioned as sources of guidance and assistance on the ground. “The district planning office must be seen as a support hub to assist and facilitate small-scale development.”
The state also has a role to play in supporting the development chain, from local builders and hardware suppliers to emerging property agents. “Some of the developers are not coming from the built environment field. How do we make sure that we capacitate them so that they can better understand the sector?” Mgwatyu challenged.
Emerging developers should be encouraged to organise themselves into a collective to engage constructively with the state, he said.
Top-down meets bottom-up
Koseff argued that while the trend had to be supported from the bottom-up, development was hitting a ceiling of bylaws. The state needed to be the enabling platform that brought together different stakeholders to drive a precinct-based approach.
“We need to be able to work with the local planning district around zoning regulations,” Du Trevou asserted. “How do we start to look at mixed-use zoning, so that these spaces, especially along main roads within Khayelitsha, become activated edges rather than ... having dead, blank walls along some of our major transport routes?”
While the private sector and the government think about precinct-level approaches, entrepreneurs like Sidinile quietly continue to drive the trend. For the first two years, Sidinile receives only 25% of the rent from her backyard unit – the rest goes to Bitprop. This increases to half over the next three years, then 75% until, after 10 years, she will have paid back the capital.
Was partnering with Bitprop to build the unit worth it? Definitely, Sidinile said. In fact, she’s thinking about saving up to eventually build another block of flats elsewhere to rent out. “In the end, [the unit] is going to be mine. I lived in a shack for I don’t know how many years,” she laughed. “Ten years is nothing.”
Author: Andrea Teagle, a science writer in the HSRC’s Impact Centre
•Informal backyard housing development at a crossroads – HSRC Review, March 2021
•Cities at the epicentre of the COVID-19 pandemic: Density matters – HSRC Review, July 2020
•Lived realities of urban peripheries: Building infrastructures of change – HSRC Review, July 2020
•Transforming backyard shacks into decent flats – HSRC Review, March 2020