By Warren Robertson
Over the past 24 years the government has built about three million homes – and while this is nowhere near to solving our affordable housing backlog – it has stimulated a potentially powerful economic engine.
The affordable housing sector backlog can be addressed as long as it is approached carefully and in the correct way, especially by government and financial institutions, says Kecia Rust, executive director and founder of the Centre for Affordable Housing Finance in Africa (CAHF).
Statistics provided by CAHF state that 1 888 979 properties built by government were registered with the deeds office as at the end of December 2017. Of these, 951 850 are situated in the major metros and 847 292 of those are older than eight years, making them eligible for trade on the resale market.
These houses form a significant 30% of all deeds registered residential properties in South Africa and may form the foundation of powerful economic change in the country, provided they can be leveraged to generate economic opportunity for legitimate owners who buy and sell them in the formal system.
There are multiple reasons for this.
“Everyone understands that a home can be an excellent private asset. It can be used as security against a loan, it can provide an income and it forms the basis of effective citizenship by providing an address. That’s the triangle everyone knows,” explains Rust, who says the real economic benefit of home ownership can be seen on the impact it has on the local economy.
“Formal home ownership creates jobs in construction when the houses are built and in retail when they are sold – people need new furniture, curtains and so on. A collection of homes also need services, maintenance, transport hubs, schools and the businesses that arise to provide these services also stimulate the economy,” she says, adding, “With the direct impact multiplier, for every R1 invested in housing construction and residential rental, the economy generates R1.92.”
In addition, the financial sector benefits as new mortgages and loans are taken out and transfers of ownership are confirmed.
This seems simple enough, but currently it is not happening because the cost of selling a home formally is seen to be prohibitive with no real obvious benefits. Secondly red tape and backlogs at the municipality and in the conveyancing process can make the transfer drag on for months, when owners need a quick turnaround. Rather than take on the costs of transfers, rates certificates and conveyancing fees or tackle the deeds office then wait months for confirmations, some homeowners at South Africa’s lower end opt to simply sell their houses without any formal record, and for what they can get in cash.
“The trick is to get those homeowners to see the benefits of selling their homes formally, and to do so we need to make it as easy, quick and as cheap as possible,” says Rust who believes that the rewards for achieving this are immense for both the country’s poor and the South African economy.
“The average churn rate for the entire residential property market in South Africa is 2.58% a year. Applying this to eligible government-subsidised stock in the major metros suggests the potential for 21 860 new resale transactions a year, which could translate into many new mortgage loans, further growing the economy,” she says. “The sellers of these houses will then become new buyers with equity, capable of buying at the next level.”
It’s a system – that if enacted – could see people gain access to the residential ownership ladder who previously may have been trapped in informal housing.
“It is important to encourage government and financial institutions to grant loans and subsidies to people who are eager to enter the resale market. Waiting for a brand new RDP house can take decades, whereas making finance available and allowing people to enter the formal housing market could see them already empowered in that time,” adds Rust.
With this in mind CAHF has opened an experimental Transaction Support Centre in the Desmond Tutu Sport & Recreation centre in Khayelitsha, Western Cape, with its partners, 71point4. The goal is to connect buyers and sellers to lawyers, estate agents and others in the formal market so they can be educated regarding the benefits of selling their homes formally, while potential problems with title deeds can be overcome and the process of selling into the formal sector can be made as smooth as possible.
“The TSC doesn’t earn commissions on sales or charge any fees for our advice or assistance,” says Rust who adds that, if it’s successful, the TSC model will be rolled out to other areas.