Not easy to revive dead capital'

Posted On Wednesday, 09 June 2004 02:00 Published by eProp Commercial Property News
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FOR the average suburban family, the family house, cluster or flat is not just a home.

 

Property-Housing-ResidentialIt is usually their single biggest asset. They can put it up as collateral to raise cash from the bank.

And these days, with the house price boom continuing at full tilt, its owners can expect to sell at a profit, enhancing their wealth.
However, if that is all taken for granted in SA's formerly white suburbs, it's not at all the case in the former black townships which house one-fifth of SA's population. There, the secondary market in housing barely exists.

That has all sorts of implications for SA's economic and social development. But what those implications are was the subject of hot debate at the launch yesterday of a major study of SA's township residential property markets.

Essentially, the study's sponsors which include the treasury, the housing ministry, the microfinance regulatory council, Finmark and a couple of international aid agencies see secondary market development as vital if lowincome people are to benefit from the wealth they already hold in their homes.

Critics are less enamoured of the argument that development of a secondary market in township housing would help provide a way out of poverty for low-income people, cautioning that there are some good reasons why township residents do not sell their houses.
Peruvian economist Hernando de Soto has argued for years that poor people in emerging market economies do have assets they just cannot realise these because they often do not have formal title, nor can they trade those assets.

That means they have no access to finance, since they can't put their homes up as collateral for bonds or other forms of formal sector credit. Hence what De Soto called "dead capital".

The township study puts a total value of R65bn-R70bn on housing stock in former black townships. It sees that as "dead capital" SA must mobilise, to help lowincome people to access finance, to stimulate development of small businesses, and to take the housing market forward.

The multidisciplinary study surveyed 2000 households and 400 entrepreneurs in 18 sites (townships and informal settlements) in four metropolitan areas, as well as trawling through the deeds registers in 12 of the 18 sites for the past five years. Deeds office data show only 7,5% of houses in former townships have been traded in the past five years against a norm of 30% for nontownship areas.

However, the average price attained is well below replacement value of the house. And of the formal trade, a high proportion is bank repossessions.

The survey, though, also found fairly extensive informal trade in property in these areas, with ownership changing hands without formal change of title.

Even with informal sales, though, secondary market turnover is still no more than about 12% of the housing stock over five years. In newer, privately built developments there is a fair secondary trade. But older township houses, built originally as rental stock by the apartheid government, almost never get sold.

The study divides the township market into four subsectors the old township, privately developed, informal and incremental (as in reconstruction and development programme) or site-andservice housing . Each has differing demographics and slightly different trends.
Overall, though, the study identified a host of reasons for the dearth of secondary market trade, ranging from policy issues and bureaucratic flaws to the attitudes and economic position of township residents, and the choices they make in an environment where the supply of affordable housing is limited.

The market is so thin largely because there are very few willing sellers. But there are also severe constraints hampering development of a secondary market.

Title is a crucial one. There are no formal titles in informal settlements, but even in newer, formal privately developed townships, bureaucratic delays mean many owners have been waiting five years or more for their title deeds.

Also, inheritance tends to occur informally so titles may be in long-deceased relatives' names. There are legislative and bureaucratic curbs housing legislation bars those who get subsidies from selling their houses for eight years.

There are problems with municipalities not issuing clearance certificates, so transfer cannot take place. And on top of all that, institutions that go with a secondary market are missing in townships no estate agents or conveyancers.

Given the survey findings, it is not so surprising SA's banks have failed to provide home loans for low-income housing in the townships on any meaningful scale. After all, conventional bank home loans rely on the fact there is an asset as security that can generally be expected to at least hold its value.

Conventional bonds are not possible without title deeds. Nor do they work well in the absence of a viable secondary market, with the pricing and valuation mechanisms that go with that.

One of the areas, then, where the survey does have implications is in relation to the financial services charter and the banks' commitment to extend access to banking services and lend billions to the low-income housing market.

Clearly, banks will have to find unconventional, innovative ways to do that lending if they are to deliver on their commitments. They should also be engaging with any initiatives designed to improve the system of title registration and enhance development of the secondary market.

Doing that also seems essential if the banks are to bank more of the unbanked, particularly if they are to provide more credit in areas such as small business.

Critics argue, though, that township residents are being perfectly rational. Given their vulnerability, holding on to their houses is a vital survival tactic. So is avoiding home loans loaning against your house could help you up the ladder, but the risk is it could instead drive you further into poverty, since if you default on your bond you lose your house.

Crucially, too, houses are in such short supply in townships that few who have them let go. Indeed, it makes sense to take advantage of every opportunity on offer to gain shelter for extended family members, buying in town, for example, but keeping the township residence.

Arguably, though, shortcomings of the township secondary market are constraining expansion of the primary market. If there was more trade and finance in township housing, financiers and developers could have more incentive to go in, creating a virtuous cycle.

For now, though, the new survey, being presented to stakeholders around SA, should help to open up a range of policy debates in public and private sector circles and if its sponsors have their way, it will also result in a range of initiatives designed to address the dysfunctions of the township market.

Last modified on Thursday, 22 May 2014 18:34

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