SA Affordable Housing May - June 2019 // Issue: 76 | Page 12

ASSOCIATIONS
Entitled to a house
About a third of residential properties on the deed’s registry in South Africa
have been built by government since South Africa’s first democratic election.
By Illana Melzer
10
MAY - JUNE 2019
W
ith about two million out of roughly six million
houses built by government in the past 25 years,
this significant achievement to provide shelter
was delivered to a minimum specification, which includes
adequate sanitation and other services and is critical in
enabling poor households to sustain themselves and
even thrive.
But beyond this, the programme transfers an asset to
beneficiary households, in all likelihood the most valuable
asset households will ever own. The housing subsidy
programme is therefore directly redistributive, transferring
a valuable, leverageable asset directly to households
and this has a direct and immediate impact on
household wealth.
But the value of that asset, and therefore the magnitude
of the wealth transfer is not fixed, nor is it equivalent to
the input cost. House prices are determined in a market
where willing buyers and sellers interact. To maximise the
value of that asset, and to maximise the magnitude of
wealth transfer, local property markets must function with
as few frictions as possible.
Abundant anecdotal evidence indicates that in many
affordable areas in South Africa this is not the case.
Government estimates there is still a title deed backlog of
more than 520 000 units on pre-2014 RDP projects. These
properties have not yet been formally transferred to
beneficiaries. In addition, title may be compromised for
many of the 1.8 million government-sponsored properties
on the official deeds registry.
Informal transactions are common, as are cases of
intestacy, with properties not transferred to heirs following
the death of the registered owner. These off-register
properties cannot be mortgaged and are therefore likely to
transact at lower values, which impacts negatively on
property market performance in lower income
neighbourhoods. 1
In addition, poor urban governance and limited
compliance with formal planning processes as well as high
levels of borrower indebtedness limit the scope for the
participation of mortgage lenders in these areas.
It is critical that these challenges be addressed to
integrate lower income areas into the formal property
market. And while these challenges are significant, there
are critical factors that can support the process. There are
very generous capital subsidies available to first time
homebuyers who earn between R3 500 and R22 000 a
month. A household earning R10 000 a month, for
instance, qualifies for a capital subsidy of R88 3233 .
This, together with an affordable mortgage of about
R170 000 2, provides sufficient capital to fund the purchase
of an entry level house on the resale market, where the
stock of existing, government-built subsidy housing offers
a source of affordable supply.
The value of a house can be a direct transfer of wealth to the household.
Our work at the Transaction Support Centre (TSC) in
Khayelitsha in partnership with the Centre for Affordable
Housing Finance in Africa, builds on this foundation. It
focuses on helping clients resolve a range of housing
related issues – including obtaining title deeds, securing
planning permission for building activity, buying or selling
properties formally and accessing subsidies and
mortgage loans.
At the same time, we use our experiences to inform an
ongoing engagement with National Treasury, Human
Settlements and the City as well as lenders, legal
professionals and smaller developers. Through these
engagements we attempt to address the underlying
problems that limit the ability of households and private
sector investors to grow, and participate in, the formal
property market in affordable areas.
For more information:
1. Visit: http://housingfinanceafrica.org/documents/
investment-economic-empowerment-opportunities-in-
south-africas-affordable-housing-sector/ for an
overview of these dynamics.
2. This subsidy, known as the Finance Linked Individual
Subsidy Programme (FLISP) is available for first time
home buyers who earn between R3 501 and R22 000.
The capital subsidy is a declining amount, starting at
R121 626 for households earning R3 501 to R27 960
for households earning R22 000.
3. This assumes a 20-year mortgage granted at 14% a year
interest with R400 a month in insurance. Total
instalments (including insurance) are capped at 25% of
household income.
Illana Meltzer is the founder and lead consultant at
71point4, a Cape Town-based strategic research
consultancy specialising in people-focused, data-
driven research. Their work focuses on bringing the life
and experience of citizens, end-users and consumers
into the decision-making processes of policy makers,
think tanks and executives. The 71point4 team
comprises data scientists, economists and marketers.
www.saaffordablehousing.co.za