Technology and the tale of two markets

2022-03-16T06:40:53+00:00March 16th, 2022|Finance Matters|

Slow and steady wins the race. This is the approach South Africa’s residential property market is taking when it comes to the adoption of technology.

Caution, ultimately, is the safest bet in a market that is reliant on systems that work. But one thing is certain, technology is set to greatly enhance the efficiencies across the industry.

South Africa has a complex residential property market that is broken into two distinct segments. The first is the middle- to upper-income segment, which is well-developed and vibrant. The second which is the lower-income market, although vibrant, requires infrastructure in place to give it much-needed structure and formalisation.

Property ownership is known to underpin the economic wealth creation journey. Property has the potential to help people to generate income, accrue financial interest and create generational wealth, making it critical to put technology to good use in lower income markets. It plays an important role in ensuring homeowners not only get access to finance, but also get connected to the value chain and network of renters, buyers and investors.

Big boom for the low-income market

Lesa Moloi, co-founder and CEO of Parkupp says that one of the most notable innovations she has heard of is around giving unbanked people access to finance. Although most of the country’s banks are recognising the potential of the low-income market in terms of home loans, bank finance is still an expensive option for some. However, new players are looking at how they can innovate in this space, such as mobile telecommunications companies investigating ways to access people’s creditworthiness based on the way they pay for the mobile airtime and data. She says, “They are trying to find alternative ways to harness data and give people access to finance.” This could be a game changer for the country’s millions of unbanked citizens.

There are also a growing number of applications that are entering the market to connect renters to homeowners, ultimately giving low-income home-owners income-generating opportunities through property ownership. One such app is Bitprop. Moloi says, “Bitprop not only gives financing, but they also help with the construction of backroom accommodation. They are giving owners of affordable housing the opportunity to become entrepreneurs.” The app is also helping homeowners connect with potential renters, along with similar apps being launched in the market.

On the rental side, Moloi notes that digitisation of the industry is not only helping owners increase the utilisation rates of their properties – in Parkupp’s case and parking spaces – but is also having a massive impact on improving administrative efficiencies through tools like online contracts, digital payment options, and easy and quick sign-on and cancellation options. “There is also the flexibility that it offers,” she says. “Our customers can book parking for an hour, a day or even monthly,” she adds. This means that users pay only for what they need. Although residential properties are a lot more complex, Moloi says that platforms like Airbnb have started to adapt their offering to include long-term rentals while still maintaining their easy booking and online payment systems. Space-as-a-service remains a growing property trend.

Fleurhof | Johannesburg Gauteng. Image credit: CAHF

Fleurhof | Johannesburg Gauteng. Image credit: CAHF

When it comes to technology, one sector that may benefit most from innovative tech solutions is the lower-income segment. Currently 55% of the 6.6 million registered residential properties in South Africa are valued at under R600 000, according to Citymark, a property portal established by the Centre for Affordable Housing Finance in Africa (CAHF). Of these roughly 3.6 million properties, just over two million are government subsidised, meaning owners were given their homes as part of the National Housing Subsidy Programme.

The problem however, notes Kecia Rust, Executive Director and founder of the CAHF, is that although these houses were given away for free to low-income families, many of the homes have significantly reduced economic value to the owners, the reason being the administrative shambles around the issue of title deeds to the owners.

Image credit: CAHF

Image credit: CAHF

Many state-funded houses, including the two pictured above, have not been transferred to beneficiaries, creating a situation where entire neighbourhoods lack formal tenure.

According to the CAHF, around 1.1 million homes built before 2014 have not been transferred into the names of their rightful owners, and this is causing a multitude of problems says Illana Melzer, Engagement Manager at strategic research consultancy, 71point4. Not only are homeowners unable to legally renovate, buy and sell these properties; municipalities are also not able to charge people for service delivery, including rates and taxes, water and electricity.

“This has a massive impact on the governance and sustainability of cities. Without a better system, we cannot have functioning cities,” emphasises Melzer.

This is where technology has the potential to transform a critical segment of the South African economy. In partnership with the Transaction Support Centre (TSC), a joint project of the Centre of Affordable Housing Finance in Africa and 71point4, Melzer and her team are working to formalise this sector of the market. She says, “We are using technology to start getting the system working.”

Melzer explains that the TSC has a walk-in office where clients who have problems with their title deeds can seek assistance. In addition, the TSC employs a team of people that goes out and collects information and documents from residents of a particular house to prove ownership. They then validate the information received and digitise all documentation that can support a claim on ownership, including identity documents, marriage and death certificates as well as copies of sale agreements that might have been signed.

Image credit: CAHF

Image credit: CAHF

 Source: TSCMelzer then explains how the technology works, “We are working with Seso Global, a UK company that develops blockchain-based real estate solutions. The solution we are building with them is much more of a CRM (customer relationship management) system. It is about document management and workflow management. It is also about documenting evidence that can support a claim of ownership. We keep copies of documents so that they can’t be tampered with after the fact. We then have processes to follow up with clients, to trace them and prompt them to act.” The TSC focuses on getting all the necessary documentation to be able to present it to the Deeds Office for registration.

What is critical about this technology is that it ensures that there are checks and balances in place when it comes to user accountability. It is underpinned by blockchain, and although it is not foolproof, it can grant specific permissions to specific users to perform specific activities, and attribute every action to a specific user, meaning that should something go wrong, the user can be identified. This means that people’s properties and information should remain secure, and if something does go wrong, the individual can be identified and held to account.

An important aspect of the platform is that it can ultimately be integrated with municipalities’ systems in terms of ensuring that they can get access to all registered owners’ information. This means that homeowners can now be supplied and charged for service delivery, while homeowners will be able to renovate, upgrade and sell their properties legally. It can also integrate directly with lenders, who can assess whether or not to grant finance on the back of available evidence.

Currently the TSC is working with over 1 200 homeowners but is looking to scale in the near future and then to grow across South Africa. Melzer, notes however, that they cannot succeed if they do this in isolation. The success of this venture is dependent on collaborative arrangements between a number of government departments, including Department of Home Affairs, the Masters Office, various departments in the City including Revenue and Human Settlements, Provincial and National Human Settlements departments, and the Deeds Office.

Digital efficiencies

Image credit: CAHF

Image credit: CAHF

In the middle- to upper-income segment, although buying and selling properties is a slow and admin-heavy process, the system is functional. Monette Joshua, Head: Document Management for Absa CPF, notes that systems have not moved on much from a digitisation or technology perspective. She says that across the property spectrum, processes are still “quite” manual. She then adds, “Mooted changes brought about by the Electronic Deeds Registration Systems Act 19 of 2019 will likely speed up manual processes of registering deeds. Section 6(3) of this Act will make it possible for deeds to be registered electronically in a manner that will make them compliant with the process described within the Deeds Registries Act 47 of 1937.”

“Digitisation of the property industry will result in a more robust sector by eliminating structure inefficiencies brought on by working on a paper-based system,” says Joshua. “The transfer of information from one party to the next will occur at a faster rate under a digitised regime.” This is why there’s a move away from paper-based systems to digital channels.

This trend will mean that estate agents need to adapt swiftly. As more information is available online, and processes get easier to navigate, estate agents may be forced to lower their fees to remain competitive. “As profit margins in the subsector decline, fewer new participants will enter the market. Under this new environment the services provided by real estate agents will expand, but, as margins continue to be squeezed, market participants unable to operate under the new trading conditions will ultimately be crowded out,” notes Joshua.

House buyers may be the biggest winners when it comes to technology adoption. Joshua explains, “The benefits of digitisation would accrue to banks in improved bond registration periods and therefore improved customer service.” And while the disruption at this level of the market will not impact the role financial institutions have in the sector, what we can expect to see is that technology will speed up the verification process for bond-applications. This, says Joshua, will allow more people to enter the market.

Transformative tech

Image credit: CAHF

Image credit: CAHF

Illana Melzer, Engagement Manager at strategic research consultancy 71point4, says, however, “The wheels of government turn very slowly, particularly with high-risk initiatives. So, although it takes six weeks to get new ownership registered with the Deeds Office, it works.” And because the system works, she believes the adoption of digitisation may take a lot longer at this level.

For this reason, innovative technology in the residential property market is being driven by the private sector and is having its biggest impact on the communication and sharing of information side of the industry. Joshua notes that not only are social and digital media platforms making it easier for agents to market their properties, they are also having a positive impact in terms of the flow of information. Buyers are now able to see exactly which houses are on the market and how much they are selling for.

While the South African residential property sector aims to improve its structures and efficiencies, technology is serving a vital function of connecting people, sharing information, and giving them opportunities to own homes – opportunities they have never had in the past. They may not be seeing the fanciful futuristic systems that everybody imagines, but the industry is being exponentially enhanced through these necessary efficiencies that technology brings.

This article first appeared in Issue 2 of the Absa The Address Magazine