The International Finance Corporation wrote on its website on March 18, 2019 that the IFC, a member of the World Bank Group, had signed a landmark agreement with the Fijian Government to bring in the private sector to help provide affordable and climate-resilient homes for low and middle-income families.
The move was said to be in line with the government’s vision to provide affordable and decent housing for all communities by 2020, aimed at supporting families who struggle to find housing due to rising land and home prices.
That date has long expired, so we must relook at the whole crisis and try thinking something simple, affordable and sustainable, and still have the backing of the IFC.
For a background story, readers can just Google for related news, but not be misled by the promises of the past that may flash from the net.
Reading should be a learning exercise only.
There was an advertisement by Government last year calling for EOI’s from interested parties to participate in a proposed Private Public Partnership (PPP) model to develop affordable housing units.
We had expressed interest from the institution I was with at the time, but nothing eventuated from that call for EOI’s.
Maybe there is some work going on behind the scenes, but it has to emerge quickly so that work on solving the housing crisis could start early.
The crisis is not alleviating on its own, but is worsening as we await any workable plan to be put in place by the powers that be.
The PPP part
The then line minister had at the time of signing of the agreement, stated that they had already undertaken an analysis of costing models in partnership with the World Bank to explore the introduction of new cost-saving technologies and were harnessing the innovation and expertise of the private sector, working with local and foreign contractors to build up a stockpile of new homes that can house more Fijian families.
On paper this looks like the ultimate solution and I couldn’t probably think up something better at the time had someone asked me to.
But we can do so now as the problem that was supposed to go away isn’t going anywhere.
It would make sense for the Government to re-advertise the PPP project and maybe gauge investor confidence at the same time.
IFC’s Director for East Asia and the Pacific at the time Vivek Pathak had said that, “a key reason for lack of affordable housing is access to land for development and the high cost of construction, so we will work to help the Fijian Government develop an affordable housing demonstration project, so Fiji can take a major step in ensuring people have quality housing they can afford.”
I believe that the new director Kim-See Lim thinks along the same lines.
The niggling questions – affordability
While discussing this topic and shedding light on the solution, a colleague asked me how I would keep it affordable for the low and middle-income buyers.
Then some basic math kicked in.
How Government acquires land for residential development is common knowledge across the populace and there is little to no doubt that this has always been done with full legal protection for both the landowner and the customer or the lessee.
So, assuming the acquisition cost for each quarter acre area of undeveloped land is $10,000 at premium value paid by Government, and add a further $20,000 as development cost for that quarter acre, we have a total cost of $30,000 on land only.
We must remember that land acquisition costs will already have the premiums and other minor costs covered and the development costs will have all earthworks and utility services covered.
I have done enough work in this area to have a sound opinion on such costs.
Building construction costs in Fiji have increased significantly to above $2000 per square metre.
However, we are not discussing upmarket buildings here.
Decent sized, around 100 square metres of floor space will easily accommodate three bedrooms, a lounge, kitchen with a single bathroom and toilet.
At an approximate and controlled construction cost of $1500 per square metre, a 3-bedroom standalone unit will cost somewhere around $150,000 to build.
A strata unit of the same specifications will cost less than that, and most in the business will agree.
So now we have a total cost of $180,000 to have the house ready for sale.
A mark-up of 20 per cent will take the sale price to $216,000 which is affordable to a person earning an income of less than $50,000 per annum.
A net income of around $3000 per month will allow for around $1200 mortgage repayment a month, lower than the banks’ debt service ratio (DSR) of 40 per cent.
A two-bedroom house with a smaller floor area will attract a lower building cost, ultimately bringing the total cost down to make it more attractive or suitable to people in lower income brackets.
Who will build them?
Whoever has the money, and can invest. Simple.
If we are talking about local investors, of course they can access their own financiers.
If we are talking about foreign companies, they also can access their foreign financiers but strictly be prohibited from accessing loans locally.
This will ensure their commitment and also continuity in the housing development projects as they will have obligations to fulfill offshore in terms of acquired loans.
I know of a few foreign entities that were willing to invest in the housing development project that was advertised last year.
Sadly, there’s no more word on it.
But it could be a good thing after all as that EOI call looked more like an election year thing.
Authentic EOI
The challenge is for Government to do it now and not in 2026.
In fact, after the EOI call appeared in the newspaper, a local colleague at the time had hinted that the project may not eventuate as it could have been an election gimmick.
I had told him at the time that Fiji’s housing crisis was genuine and a lot of our people were genuinely unable to afford decent housing due to the massive shifts in real estate sector behavior, to say it kindly.
Properties that should be valued at $250,000 are being marketed and sold at least at double the price, that’s if a ‘good deal’ is struck.
Lands with Agreement of Lease type of lease are now being sold for more than $50,000 and sometimes for over $100,000 for reasons unknown.
Land with proper leases are being priced well over $100,000 and the realtors would sell you the ocean (view) with it for another $100,000 to call it a great deal.
Freehold land was beyond most people as urban quarter acre lots are priced between $500,000 and God knows how much, and lots outside towns and cities are sold for between $300,000 and $500,000.
We can take nothing away from Freehold lot owners who sell at their prices as they fully own the lots.
They are called Freehold for many reasons.
When we talk about affordable housing we are not discussing Freehold land but rather Native and Crown land, which eliminates the issue of land acquisition at inflated prices.
The EOI was real, and Government must reignite the idea and immediately set the ball rolling on it.
I haven’t lived in a cave in the past year so I probably have not missed out on any news on that same EOI: there has been none this year.
• PART 2 – ARE WE LOOKING AT ANOTHER TACIRUA EAST NEW SUBDIVISION? — In The Sunday Times tomorrow
• DONALD SINGH is a regular contributor to this newspaper. The views expressed here are his and not necessarily of this newspaper
