According to UN Habitat (2011), over 68% of the world population will be living in urban areas by 2050. The hurdle of affordable housing in the face of urbanisation is not new in the context of South Africa, where the notions of access to adequate housing and ownership rights present an ongoing challenge. These obstacles presented opportunities which respond to the current issues surrounding access to affordable housing which inspired the creation of Bitprop.
Bitprop is a start-up piloting in South Africa that connects investors to community property owners within informal settlements. The company facilitates the development of affordable housing infrastructure and manages financial returns for both parties.
Our Future Cities’s Katya Krat speaks with Claire du Trevou, the project architect at Bitprop, about their current initiate and future vision.
What does Bitprop do?
Bitprop works to “Enable micro property development at a macro scale”. We want to prove that previously ‘invisible’ property assets, which are not recognised by normative legal or financial institutions, can be developed into valuable investment opportunities. We do this by taking each homeowner that we work with through the process of securing their title deed. With that in place, we design rental accommodation to be built on their property, secure council approval and deploy our local construction teams to construct the flats. Through this process, the homeowner is able to turn their property into an income-generating asset. Bitprop acts as the in-between agent as we manage this process on multiple levels and share in the rental income to cover its costs.
Our duties include locating investors, drawing up professional building plans, sourcing reliable local builders, and enforcing good environmental practices. Furthermore, we work with the homeowner to develop landlord, financial and entrepreneurial skills.
We also assist with tenant acquisition and manage the rental income. At the end of the process, Bitprop can provide a return to investors, creating a sustainable investment model that allows for significant expansion. Our work enables homeowners to open bank accounts, save for their children’s education or receive a sustainable pension income.
What is the current cost to build backyard properties and how do investors make their money?
It currently costs us approximately R5200/sqm to build four bachelor rental flats on a property. Each unit is about 25 square metres, so it’s around R450000 per property. This amount is inclusive of professional fees and management services. We assist homeowners in obtaining tenants and in dispensing landlord training which ensures each person is empowered to be a fair landlord that manages their property effectively.
Bitprop pays for the construction and professional services upfront. Through our innovative rental sharing agreement, we share the rental income with the homeowner over about ten years. During this time, Bitprop can recover its initial capital investment, as well as make a small return on investment for the investors.
How does Bitprop provide landlords with title deeds?
Currently, we work within the formal title deed system. We have partnered with an organisation called Khaya Lam to work through any title issues there may be present, and to secure the title deed. In the long-term, however, Bitprop is working to create the “Probability Title” as an innovative way of recording and validating property ownership to measure and reduce the perceived investment risk. We do this by collecting various data points about a person’s property, such as how long they have lived there and whether their neighbours vouch for their ownership.
Then we can create a proxy title which can be assigned a risk. This process opens each property to investment which can provide returns for both the property owner and the investor. Such investment enables the development of improved housing, thereby significantly improving living standards.
The aims of this initiative are directed towards local woman, could you explain the significance of this?
Research reveals that in the micro-lending space, woman participants are typically better at repaying loans. Thus it made sense for us to partner with female homeowners to help reduce the risk of non-payment. Additionally, research proves that woman tends to spend more of their income on education and their child-rearing. So partnering with a woman means that the knock-on impact of our investments is even more significant. However, we don’t have a strict ‘female only’ policy; we have and continue to work with men as well.
We are also currently looking to partner with a female-led construction company. The construction industry is one of the least innovative sectors and continues to be very male-dominated. One of Bitprop’s intentions is to revolutionise systems within the industry. We hope to achieve this by teaming up with young female contractors and investing time, skills and resources into them that allow their voices to influence the industry’s norms.
What has been Bitprop’s most significant challenge to date?
Honestly, there have been many! Trying to shift mindsets and challenge pre-conceived ideas across multiple dimensions of the business is worth a mention. A lot of what we are trying to do is not rocket science, and it is being done at a grassroots level already by savvy local developers. We are merely trying to access investment at scale. But it has been incredibly challenging at times to change perceptions around low-income markets. However, the more units we develop, the more tenants we can accommodate. So each month, we collect rent on time and are slowly building evidence-based data to disprove the many assumptions made about rentals in low-income markets.
You are currently busy with your pilot project in Khayelitsha, but what is next for Bitprop?
Yes! So we’ve successfully built for four homeowners in Khayelitsha this year. And we’re kicking off 2020 with six new homeowners in Khayelitsha. But we’ll also be expanding to other provinces mid-2020 hopefully. If we can find the right partners, we’ll hopefully be able to start working in other African countries by 2021. We’ll also be spending much time in the coming year focusing on improving the design in terms of spatial efficiency, environmental performance and value-add; like WIFI options.