UK home buy assistance schemes could give lessons to SA, says Rawson MD

Those South African property trend watchers who believe, probably rightly, that it pays to keep an eye on the UK property market – because it tends to set new trends six to nine months ahead of the local market – will have noticed that two initiatives have proved encouraging, despite a general acceptance in UK, Europe and the USA that unemployment remains very high and that a full-scale recovery will not be seen until 2011, says Tony Clarke, MD of Rawson Properties.

The first of the encouraging factors, says Clarke, is that three of Britain’s largest home builders, Barratt, Redrow and Liberty International, have recently gone to the market looking for a total of £1,13 billion to restart home building operations – and, according to the “Daily Telegraph”, at least one other major residential developer, Persimmon, is likely to follow suit. Five other major UK home developers have already this year put out cash calls to shareholders to initiate new projects.

The CEO of Barratt, Mark Clare, was quoted by “The Times” as saying that this is the right time to recapitalise because the equity markets are now more stable and investors are beginning again to look for better returns than they can achieve in the low-interest money market. The company, he said, could not afford to lose out on the purchase of any more suitable sites as it had done in recent months. (Both Barratt and Redrow had substantial losses in the 2008/2009 financial year.)

Clarke said that these comments apply to residential developers in SA, many of whom, like Rawson Developers, are now again on the hunt for development opportunities.

The second encouraging factor from the UK property sector has been, as here in SA, the banks’ re-entry into the mortgage bond market for “affordable” homes.

As UK buyers, especially first time homebuyers, are desperately short of cash, the UK lenders have been promoting the concepts of shared ownership or shared equity.

In the first the ownership of a property is split between the buyer and a housing association or a private organisation.

In the second the owner is allowed to buy his property through two loans, a conventional mortgage and an equity loan.

These schemes can be taken up in conjunction with another UK concept known as “staircasing” which allows the buyer to kick off with a small share in his property, paying “rent” on a subsidised basis on the remainder of the shares which are still held by the bank or a housing association. As the buyer’s income increases and the value of the property rises the owner raises his shareholdings and pays less rent.

The UK government, eager to encourage consumer confidence, is now assisting those in the lower income groups through “Homebuy Direct”, a scheme in which they join with the developer to co-fund 30% of the total price of the home – and this loan is free for the first five years.

Another UK scheme, “Rent to Homebuy”, makes it possible to rent for a specified period – say two to five years – during which time the tenant has the option to buy on the easier terms outlined above and part of his rent goes towards his deposit. As the rents here are subsidised to be 80% of the market rate, the buyer is given a chance to save for a small deposit.

A banking specialist, David Black, was quoted in the “Saturday Guardian” as saying that 30% of current home buys are now being done on a shared ownership basis.

Clarke commented that these and similar enterprising schemes have come into use in the USA and have been a major factor in turning the residential market around and in both the UK and the USA, pushing up house prices for the first time in two years – despite the general acceptance that recessionary conditions are here for a long while yet.

“It does appear,” said Clarke, “that the UK and USA place a greater importance on assisting the residential sector than SA does. Officially our policy is that home ownership is the keystone of political stability – in practice we do not give the homebuyer as much help as these countries are now doing.”

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