If having your own property business is in your dreams, here’s where and how to make it a reality
WORDS: HELENE MEISSENHEIMER – PHOTOS: SUPPLIED
Small, medium and micro enterprises (SMMEs) have a crucial role to play in SA’s economic recovery, says Bonga Xulu, regional portfolio manager, Trust for Urban Housing Finance (TUHF) in Johannesburg. Research by McKinsey & Company says SMMEs represent more than 98% of businesses in South Africa, employing between 50% to 60% of the country’s workforce across all sectors, and are responsible for a quarter of job growth in the private sector.
However, SMMEs in South Africa have been hit hard by the Covid-19 pandemic. Analysis by McKinsey & Company predicts that more than half of local SMMEs may close their doors permanently before the crisis passes. Given the significant direct and indirect contribution of SMMEs to the economy, their survival and rebound will be critical to the country’s overall recovery.
Solly Ramalamula recognised an opportunity in Hollywood Centre at the corner of Nugget and Helen Joseph Street in downtown Johannesburg in 2014. Originally the site of a clothing manufacturer, the building was run down and had frequent break-ins. Ramalamula started work with TUHF on a conversion in 2015. The total cost was R22m. Today, the building has 101 apartments, a mixture of bachelor, single and two-bedroom units. Ramalamula owns and runs Take Shape Property Management, which assists property entrepreneurs in managing their properties
Why entrepreneurs are important
Xulu says firstly small businesses have a positive impact on unemployment rates. “Several international studies show a thriving SMME sector creates jobs and reduces unemployment. It’s because they’re often less cautious about hiring less experienced people than their large counterparts. SMMEs also promote on-the-job skills development.” SMMEs’ are agile and responsive to changing market conditions and client needs. “Large enterprises often have many policies and procedures to manage large workforces and portfolios. It can hamper their adaptability or to provide tailor-made solutions for clients – particularly in a crunch,” says Xulu.
SMMEs seldom have these problems, which means they can be more innovative, work at a faster pace, and even disrupt the industries in which they operate. “Amazon, Uber and Airbnb are just some of the examples of entrepreneurial vision, which have grown to become multinational businesses operating across territories,” says Xulu. Lastly, in tougher market conditions, larger entities should use smaller businesses to support their growth strategies. “By partnering with SMMEs to outsource non-core business functions, or to access niche skills that may not be available in-house, established large organisations can invest constrained resources in their own recovery and business continuity. In doing this, they also play a role in enterprise development by empowering up-and-coming small entities,” says Xulu.
Opportunities for budding property entrepreneurs
“Urbanisation in South Africa is ongoing, as young people continue to flock to our three major cities – Johannesburg, Cape Town and Durban – to look for opportunities,” says Xulu. “This trend makes investing in residential property in these inner cities a good opportunity for aspiring entrepreneurs because they show consistent above average demand and returns.” Residential rentals are increasingly sought after in the inner cities as people seek out affordable accommodation with access to amenities and reduced commutes to work.
“Systematically developing a property portfolio – such as starting with one’s own small apartment and adding to this as one’s finances grow – puts budding entrepreneurs in a position to build capital that could open doors for becoming property entrepreneurs,” he says. Capital and a good track record of managing rentals on a smaller scale are important for becoming a property entrepreneur. “Entrepreneurs have a responsibility to start out with their own capital, and demonstrate their dedication and ability to run a business successfully, before they approach investors,” says Xulu, “and a small property portfolio is a great way to do this.” From here, and with access to funding and the right support and advice, it’s possible to grow a profitable, successful SMME.
Funding and advice
“Entrepreneurs who want to grow in the property market should look for funders who understand their market, not only because they’re more likely to invest with them but, perhaps more importantly, to gain access to niche business and financial advice,” says Xulu. “Because entrepreneurs are often not financial experts, access to niche financial and business development advice becomes more important as the business grows.”
As an example, entrepreneurs who want to buy a property for refurbishment in the inner city are more likely to succeed in their application for funding and gain access to expertise in this market from a specialist in inner city rejuvenation than from a traditional commercial bank. The right finance provider will also provide the most appropriate financial education for the entrepreneur’s area of interest, ensuring a good working relationship between the two and ultimately increasing the chances of successfully growing an SMME.