A property fund being raised by International Housing Solutions to invest in upgrading South Africa's residential property stock is benefitting from China's investment in the country.
IHS, a joint venture of Baltimore-based Municipal Mortgage & Equity and a Dublin-based group of private investors, is expected to close its South Africa Workforce Housing Fund later this year on $250 million after luring in its fifth and final LP.
According to the firm's managing director Soula Proxenos, one driving force behind the LP commitments is China's increasing investments in South Africa's economy.
Sino-South African economic relations have strengthened in recent years on the back of cross-border deals such as the Industrial Bank of China's $5.5 billion purchase in 2008 of a 20 percent stake in Standard Bank in Johannesburg.
As China's economy has grown, the country has looked to Africa to meet its resources needs. According to a report by Deutsche Bank, by 2005 China had become Africa's third-largest trading partner after the US and France, and within that, 19 percent of all Africa-Chinese trade came from South Africa.
As China continues to grow, those entities or countries that are rich in commodities are going to prosper. The conversations we have had with our investors have not been about political risk but around things like employment levels.
High on China's shopping list are commodities such as oil, steel and platinum. IHS expects the economic relationship between the two countries to continue to strengthen, thus leading to increased employment levels and subsequently increased demand for affordable housing.
Soula said: “As China continues to grow, those entities or countries that are rich in commodities are going to prosper. The conversations we have had with our investors have not been about political risk but around things like employment levels.” Unemployment in South Africa last month stood at 23.5 percent, the same as in May 2008, according to the government's quarterly labour force survey.
The South Africa Workforce Housing Fund is a ten-year vehicle targeting a return of more than 20 percent. The fund, which partners local developers and targets residential projects from the development stage to schemes already completed, has already committed 25 percent of its equity to projects principally around Gauteng and Pretoria and the Northern Cape region of South Africa. Soula said the fund would invest across the country in future years.
Investors in the fund include the Development Bank of South Africa and three unnamed limited partners including a pension fund, a US endowment and a US banking group. IHS also committed seed equity to the fund.
Soula, formerly managing director for international housing financial services at US mortgage company Fannie Mae, revealed that once the fund is 85 percent committed, IHS will start marketing a second housing fund that will target up to $400 million in equity and invest in projects on a pan-African basis.
IHS set up an office in Johannesburg in 2005, two years before hitting the fundraising trail for the fund. The group also has offices in Cape Town, London, Baltimore and Boston.