Understanding Financing and Decision-Making of Small-Scale Property Developers: The Case of South Africa

Abstract

There is growing evidence that small-scale property developers play an important role in delivering affordable housing units globally and especially in emerging economies such as South Africa. These developers are typically entrepreneurs who develop a few housing units to create income and wealth for themselves. The success of their projects is, however, constrained by the availability of finance, the institutional environment in which these developers operate and the products offered by the financial market. While financing for end-users is increasingly being addressed, developer finance has received less attention in emerging countries and in South Africa and is often unavailable. The objective of this research is to provide an understanding of how financing and other decisions are made by small-scale property developers in South Africa. This study employed a mixed-methods design to examine the decision-making processes and financing strategies of small-scale developers in South Africa. The conclusions are derived from an analysis of the international scoping literature review and of two surveys of market experts and developers. Through interviews, the research concludes that small-scale developers differ from other types of developers in many ways, which influences their decision-making, especially their choice of financing options. The article suggests that the success of government interventions and finance instruments will require a deep understanding of the decision-making criteria of small-scale developers in the affordable housing market and the market characteristics that they function under. The findings highlight the need for more accessible and context-appropriate development finance mechanisms, as well as supportive regulatory frameworksand trustworthy planning environments, to enable small-scale developers to contribute more effectively to affordable housing delivery.