Banks take the leap

Posted On Friday, 14 October 2005 02:00 Published by
Rate this item
(0 votes)

South Africa's banks and developers are finally coming to the party.

 

Property-Housing-Residential

Though The private sector has until now been slow to support Government's call to address the estimated 3,5m low-income housing backlog, it seems that South Africa's banks and developers are finally coming to the party.

Major players, including Absa and Standard Bank, recently launched new mortgage and bridging finance products to encourage low-income earners and developers ? the latter having traditionally shied away from the high risk/low margin industry ? to enter the affordable housing market.

These initiatives, aimed specifically at housing people earning between R1 500 and R7 500/month, are in line with the targets set out in the Financial Services Charter signed at end-2003, whereby SA's major banks committed themselves to invest R42bn in affordable housing by end-2008. Other banks are expected to follow suit soon with similar initiatives.

Absa's new My Home product enables low-income earners to qualify for 110% loans, translating into values of roughly R40 000 to R250 000, depending on income levels. The 110% loan-to-value concession is a shift away from the past, when low-income earners qualified for 80% bonds at most, forcing such prospective buyers to find 20% cash deposits.

Absa's product is unique, as potential homebuyers don't have to be formally employed to qualify for a loan if they can provide proof of a regular income. Low-income earners will also have the opportunity to fix the interest rate on their mortgage for five years ? until recently, most banks offered fixing for a maximum two years.

Standard Bank's product provides subsidised bridging finance to developers and investors to build new houses or redevelop existing units ? either for rent or to buy ? in the price bracket up to R180 000 or rental units up to R2 250/month.

Though Standard Bank's public private partnership with the Gauteng Housing Department was officially launched only last month, it has already generated credit applications of R40m, which will result in the creation of 300 affordable residential units.

Leo Mlambo, GM of affordable housing at Absa Homeloans, says it hopes to provide R12bn in housing finance to low-income earners between now and end-2008. He says that there's huge demand for housing credit in the lower to middle income groups on the back of rising income levels. However, a shortage of new housing stock costing less than R250 000 is a major stumbling block.

But Mlambo says that unlocking secondary housing markets in former black townships, which are believed to house one-fifth of SA's population, could solve stock shortages. Until recently there's been little trade in homes in townships despite the total value of existing brick dwellings in these areas being estimated at more than R100bn, according to the SA Institute of Race Relations.

Mlambo says that the challenge is to make sure that homeowners in townships obtain title deeds to their properties, allowing them to use them for collateral-based borrowing. He says that the introduction of new mortgage products aimed specifically at low-income earners will kick-start trade in township homes and encourage existing homeowners to borrow against the rising values of their properties, facilitating upgrading to bigger and more expensive homes.

However, analysts say that delivery of new affordable homes has accelerated markedly in some areas over the past 12 months. David Wentzel, MD of affordable housing developer RBA Developments, says they are adding 80 to 100 affordable houses/month ? typically sized between 40 sq m and 80 sq m and priced between R140 000 and R350 000 ? to the Gauteng market. Even so, they cannot keep up with demand.

Wentzel says that over the next three years, banks and developers are expected to go all out in a bid to meet the R42bn funding requirements set out in the charter, creating huge scope for growth at the affordable end of the market. Astute buy-to-let investors are apparently already pinpointing the fact that affordable housing offers far higher income returns and potential capital gains than the middle and upper end (R550 000 up) of the housing market, which has been oversupplied with rental properties for some time.

Wentzel says that while buy-to-let investors currently earn on average 6% to 7%/year gross rental returns in the middle and upper end of the market, the affordable sector offers investors double that at 12% to 14%. Popular affordable housing locations in Gauteng are those outlying traditional townships and lower income "grey areas" ? such as Danville and Orchards (Pretoria West), Midrand, Birchacres and Dawn Park (East Rand) and Cosmo City (north-west of Randburg). Latest Statistics SA figures confirm that affordable housing delivery, particularly in Gauteng, is picking up pace. The value of building plans passed for homes smaller than 80 sq m (classified as low-income homes by Statistics SA) increased by 136% in the first seven months of 2005 on an annualised basis.

Last modified on Saturday, 08 March 2014 13:14

Most Popular

Pam Golding Properties achieves record price of USD13.6m for sale of luxury home in Mauritius

Mar 12, 2024
Villa sold for USD13.6m Mauritius, patio & pool
The Mauritius office of Pam Golding Properties has sold a six-bedroom, luxury beachfront…

Simplified capital structure and operational performance delivers strong 1H2024 results for Fortress Real Estate Investments

Mar 12, 2024
Cornubia Ridge LP_March 2024
Fortress Real Estate Investments delivers strong 1H2024 results: Simplified capital…

Dipula and REO’s innovative approach to tenant installation for EOH grows a sustainable furniture initiative

Mar 12, 2024
Interior EOH in Montrose Place at Waterfall Park in Midrand 3
Dipula Income Fund’s new lease with EOH for the Montrose Place at Waterfall Park in…

Please publish modules in offcanvas position.