SA Affordable Housing March - April 2019 // Issue: 75 | Page 9

ASSOCIATIONS
FLISP supports new rung in
SA’s residential property ladder
During the past year or so the Finance Linked Individual Subsidy Programme
(FLISP) has financed a staggering 1.88 million residential properties.
By Kecia Rust, executive director and founder of the Centre for Affordable Housing Finance in Africa (CAHF)
D
elivery of affordable housing over the past 25 years
has had a profound effect on South Africa’s
residential property market; today, the majority of
residential properties (58%) fall in the ‘affordable’
category of properties that are valued below R600 000.
From the end of 2017, almost a third of all residential
properties on the national deeds registry (1.88 million
homes) were financed by the state as part of FLISP, the
national housing subsidy programme. Not surprisingly, this
astonishing achievement has had a dramatic impact on the
lives of the beneficiaries.
Still, South Africa’s housing sector faces three main
problems:
1. No growth in the mortgage market, with limited access
for low income earners. While origination grew in real
terms between 2010 and 2015, the nominal book
value of bank mortgages remains below pre-global
financial crisis levels in real terms. Critically, the
contraction of the mortgage market has been
especially acute for low income earners.
2. Limited delivery of affordable, entry-market housing in
both new and resale markets. In 2017 only 22 835 new
units in the sub-R300 000 market were registered on
the deeds registry (principally government subsidised
stock). In part, this is a function of housing
affordability as many buyers don’t qualify for sufficient
mortgage finance to cover the purchase price and do
not have sufficient equity to cover the difference.
3. Poor realisation of asset value for government subsidy
beneficiaries. While subsidy beneficiaries benefit from
the physical shelter their home provides, their ability
to realise the financial value of their housing asset is
constrained for a number of reasons. In the lower
value market (properties valued at less than R300
000), transactions are difficult to navigate, take longer
than is financially feasible for the buyer and seller,
create more risks and ultimately (as a proportion of the
property value) cost more. As a result, sellers often
pursue informal sales transactions and participation by
mortgage lenders is limited.
Government’s FLISP offers a significant opportunity to
address all three problems and promote a viable,
integrated housing market that serves the needs of all
South Africans and promotes growth in our economy. By
applying the FLISP in support of the secondary market –
including the resale of government subsidised housing
stock – government can stimulate effective demand for
new-build affordable housing by buyers with equity, while
www.saaffordablehousing.co.za
Total residential properties by market segment.
creating a new mortgage market niche and enhancing the
asset value of government subsidised housing.
The potential is significant: of the estimated 1.88 million
government subsidised houses on our national deeds
registry, 951 850 are in the major metros. Of these, 847
292 are older than eight years making them eligible for
resale. Each year 2.58% of residential properties transact.
Applying this churn rate to eligible government subsidised
stock in the major metros therefore suggests the potential
for 21 860 new mortgage loans per year.
The potential sale of these 21 860 units creates both
buyers and sellers: buyers could be households in the
lower-gap market earning between R3 500 and R22 000
per month, who would otherwise be unable to afford to
purchase a home. With the FLISP and a small mortgage
loan, a person earning as little as R4 100 could afford to
buy a R210 000 house. The seller of this unit then becomes
a buyer with R210 000 in equity to buy the next home on
the housing ladder and this means the loan to value ratio
for that home would be much lower, reducing lending risk
considerably. The potential sale of 21 860 units would
therefore create effective demand and activity all the way
up the property ladder.
The challenge is not just for government and the FLISP
alone, for the market to work mortgage lenders need to
explicitly engage with the potential of this RDP resale
market with new products and services. At the same time
transaction support is critically needed to enable smooth,
efficient, legal resale transactions, ensuring adequate
consumer protection and supporting the development of a
formal resale market in existing, low-value
neighbourhoods. It will be well worth the effort.
MARCH - APRIL 2019
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