In a largely stagnant economy, South Africa’s backyard rental industry is booming. As urbanisation accelerates and affordable housing remains scarce, renting out backyard rooms in townships has become a fast-growing — and increasingly formalised — business.
Demand for these micro rental units is further boosted by the increase in smaller families, with 27% of households in South Africa being one-person households, according to Stats SA’s 2024 General Household Survey.
The practice of backyard rentals isn’t new. For decades township homeowners, often elderly women, have built additional rooms on their properties to supplement their income, using personal savings, family support or stokvels.
Today, it’s a thriving industry, supported by dedicated financing models and evolving municipal regulations aimed at enabling greater densification. The City of Cape Town recently passed a major amendment to its municipal planning bylaws aimed at unblocking affordable rental housing in informal and lower-income neighbourhoods.
Businesses such as uMaStandi, Indlu Living (both in Gauteng) and Bitprop in Cape Town are pioneering different approaches to developing or financing backyard units.
GG Alcock, author of KasiNomics and a consultant focused on the township economy, estimates the backyard rental economy is now worth about R30bn annually. It’s pretty much under the radar. Many landlords may be classified as unemployed but earn thousands in untaxed income, contributing significantly to the informal economy, mostly in townships and low-income areas.
A subsidiary of the Trust for Urban Housing Finance (now called TUHF), uMaStandi provides mortgage loans tailored to township developers. CEO Lusanda Netshitenzhe explains that mainstream banks have historically avoided township development, due to perceived informality as well as construction and regulatory noncompliance risks.
“But this affordable housing subsector is becoming formalised, and we are seeing more microdevelopers enter the space,” says Netshitenzhe. uMaStandi provides loans linked to Jibar, the average interest rate at which banks buy and sell money, over a 15-year term, with the average loan ranging from R1.2m to R1.3m. Its loan book now sits at R98m, with plans to grow to R135m by March next year, and up to R500m over the next five years.
The company focuses on areas such as Soweto, Thembisa, Khayelitsha, Cosmo City, Clayville, Kaalfontein, Umlazi, KwaMashu and other townships in five provinces — a mix of legacy and emerging township environments.
Netshitenzhe says construction activity supports a broader ecosystem of tradespeople — bricklayers, carpenters, tilers and plumbers — as well as suppliers, such as Cashbuild and Build It. Other knock-on effects include growth in adjacent sectors such as architecture, engineering, banking and property technology.
Yet the industry’s growth is outpacing regulation. “People are building with or without financial support, and with or without municipal approval,” Netshitenzhe warns. She urges municipalities to create supportive frameworks.
uMaStandi’s loan book is growing, supported by capital from a commercial bank, a mix of impact investors and a foreign development financial institution “which positions us well for growth in this market over the next few years”. The TUHF group also started small and now has a loan book of just under R5bn. Netshitenzhe says uMaStandi aims to learn from TUHF’s 22-year experience to give support to microdevelopers in townships.
uMaStandi’s loan is smaller than TUHF’s, at between R10m and R15m; it has lent up to R75m.
Instead of ignoring or cracking down on informal developments, she suggests that cities allow fewer units with self-contained facilities to reduce infrastructure strain. Cape Town has taken a step in this direction. Recent bylaw reforms enable developers to build eight to 12 units per erf without costly and time-consuming rezoning processes.
Bitprop is Cape Town’s largest backyard rental developer, operating about 600 flats and expanding at 30%-40% a year. The company aims to hit 750 flats by year-end.
Its model differs from that of traditional lenders. Bitprop builds the units, runs the operations of the property with support from the homeowner for 10 years, and splits the rental income — 15% to the homeowner, 85% to Bitprop — during that time. After 10 years, the homeowner takes full control of their asset.
There’s such a big demand, we’re full — we don’t struggle to fill flats
— Jonathan Fisher
Flats average 18m²-20m², with rentals about R4,400 a month. The average tenant is about 30 years old. Bitprop operates in Khayelitsha, Eersterivier and Langa and is planning to expand to George, which is experiencing rapid urbanisation from Gauteng and the Eastern Cape.
Others are picking up on the potential in this market. Malaysian retailer MR.DIY entered the South African market last month. The chain plans to become a national brand within three to five years, targeting 50 stores, each occupying 750m²-1,000m² in convenience or regional malls. Expansion into Botswana, Namibia and other SADC countries is also on the cards.
Funded largely by social impact investors from Sweden, Bitprop’s model is also commercially viable. CEO Jonathan Fisher says: “There’s such a big demand, we’re full — we don’t struggle to fill flats. We have more than 120 homeowner partners and a strong pipeline.”
The growth of backyard rentals has spillover effects across the home improvement and DIY sectors. According to data analysis company Euromonitor International, South Africa’s home products specialist market, including home improvement, gardening, furnishings and pet stores, was worth R62.1bn in 2023 and is expected to rise to R64.4bn this year.
Jamie Williams, head of business development at MR.DIY South Africa, says the country has population density and spending power. He says the shadow economy is buoyant and can’t be easily measured, but it’s the time to grab market share and achieve scale because “there’s just more and more opportunity here”.
Despite growth, some analysts warn of economic pressure on the DIY segment. Chronux Research director Rowan Goeller says the DIY segment is under pressure. Wallets are stretched to cover basic costs and funds are not flowing through into the DIY sector.
He says though there are signs of activity, the broader construction sector still lacks the momentum promised by government infrastructure plans. “That’s all on the cards — but the government talks about it a lot and it’s not being seen in the trenches. Where construction materials players are seeing activity, it’s in the likes of roads with a demand for material, but [it] wouldn’t affect your hardware store.”
Still, backyarding is carving out its place as a vital part of South Africa’s urban housing future — one room at a time.
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