Mergence Investment Managers, an independent majority black-owned boutique asset management company, has made its first investment into the South African social housing sector.

The firm has reached financial close on loans worth R25m in respect of an initial two South African residential properties -  Drommedaris in Brooklyn, Cape Town, and Bothasig Gardens in Belville, Western Cape.

Mark van Wyk, Head: Unlisted Investments at Mergence Investment Managers, said that while Mergence is already invested in affordable housing through its High Impact Debt Fund, the social housing sector is a "very specific housing sector", with the Social Housing Act only having been enacted in 2008. 

“In terms of the Act, a Social Housing Regulatory Authority (SHRA) was established in 2012, which brought badly needed regulation to the sector whose rental target market is tenants earning between R1500 and R7500 per month. The social housing sector is partially subsidised by government,” he said.

According to van Wyk, Mergence decided to invest in this sector in line with its impact and social infrastructure investing objectives which are based on the challenges outlined in the National Development Plan.

Housing is a major challenge in South Africa and private sector funding has a role to play where government battles to go it alone. 

“The social housing industry has proven to be resilient in economic downturns, given the critical housing shortage in South Africa. Communicare has a strict credit policy resulting in good tenant profiles and a steady stream of cash flows,” said van Wyk.

There are only eight social housing institutions that are fully accredited by the SHRA to provide social housing in South Africa.

This is mainly due to the high barriers to entry related to specialised knowledge of the industry, regulatory approval and the finances required to set up a social housing institute. 

Both properties, into which Mergence has invested, are run by a social housing institution Communicare.

Communicare is fully accredited by the SHRA and is the oldest institute in the Western Cape province.

Formed in 1929, the non-profit organization now owns and manages 39 properties consisting of 3,375 rental units.

Anthea Houston, CEO of Communicare and Independent Director of the National Housing Finance Corporation, said having financiers such as Mergence enter this market is "very encouraging for the social housing sector".

"Communicare has huge plans to grow the number of rental opportunities the organisation provides into the social rental market.  The rates and terms on which finance is accessed is always key to packaging new social housing developments," she added.