Real Estate News - Plan for low-income homes

Housing Minister Lindiwe Sisulu plans to force property developers who target the top end of the market to also build homes for low-income families. She is aiming to have legislation in place by March next year.

She is also pushing the banks to up their lending target for the low income market by at least another R100-billion by 2014.

But an agreement on how best to assault the desperate shortage in the low-income segment of South Africa's housing market is bogged down over details.

Subsidies of up to R34,000 for families with a monthly household income below R3,500 are being used to help move people out of informal settlements. Private developers are building houses upwards of R180,000 and fewer than 15,000 houses are being built ever year for families shopping around the R100,000 mark.

Research published by the Banking Association earlier this year says there is a shortage of 625,000 houses for families with a household income of between R2,500 and R7,500 a month. The shortage will rise to 747,000 units by 2010.

Even if the current construction rate accelerates tenfold, the shortage will barely have been halved by the end of the decade, the report claims.

Banks have promised as part of their Financial Sector Charter obligations to pump R42-billion into mortgage lending by 2008 and they have already written loans worth R17-billion, mainly at the upper end of the low-income market.

But the association's research says that without significant reform of the chain of development for the 2.5 million families in the segment, banks will not have been able to lend more than R32-billion by 2008.

"The bottom line is that the houses just are not being built to issue loans against," said Banking Association managing director Cas Coovadia.

Affordable land is not being made available fast enough, the time for approval and provision of bulk infrastructure has doubled to 36 months since 2000 and there is no established track record to underpin a reliable capital stream in the segment, he said.

Private-sector proposals to transform the low-income housing market had gone without "substantive feedback" from the Department of Housing for over a year, Coovadia added, but said he was optimistic that newly appointed director-general Itumeleng Kotsoane would ensure movement.

"There are certain dysfunctionalities in the low-income housing market and one of these is that there is no history of securitisation or a capital market into which life offices and pension funds and non-originating banks can actually invest," Coovadia said.

The industry's proposal now with Sisulu is for a conduit for the securitisation of mortgage books and for a full-term, fixed-rate bond.

He said the government's role would include a bottom-line guarantee through a special purpose loss-insurance agency with a share of the non-commercial risk.

"We have said that this would create the confidence to bring in capital investors. Over the next six or seven years we would have developed a history of performance in the market, investors would have developed confidence and the market would take over and run normally," Coovadia said.

Though the research commissioned by the association found that the current lending target is likely to be missed, Coovadia is more optimistic. But, by failing to address the constraints blocking development, the government is foregoing a bonus.

"The R42-billion in new loans we will do, but if we can reach agreement on what is needed in the next few months, that could go up to R52-billion by 2008," Coovadia said.

Sisulu has her sights on a bigger prize, however. She is already trying to get the banking sector to think about the next target for lending into this segment.

"The agreement on the R42-billion is there, but I am always looking for ways to push the envelope so we are now negotiating about a second phase after 2008," she said.

"We have agreed in principle that it is possible to push it further. I hope for a much bigger commitment, maybe three times what is there now," she said.

Sisulu said finalisation of a post-2008 target would have to include other government ministries, including finance.

"Of course the banks will want better guarantees the higher they go and at this magnitude the discussion is removed from the realm of just one minister," she said.

In the meantime Sisulu is pushing to conclude talks about "inclusionary housing", which would entail an industry commitment to provide low-cost homes as part of every major development.

The concept, which has been adopted in various forms in countries including the US, the UK, China, India and Malaysia, obliges developers to set aside an agreed portion of every development above a certain value for low-income housing. "We are putting together a legislative framework that will go to cabinet this year," Sisulu said.

By March next year she hopes to have a Bill ready for Parliament, including the thresholds above which the commitment would kick in and the share of every development that would be set aside for low-income families.

"We should have understood from the start that if we are going to transform society, there is no better way than at the places where we live," she said.

The international precedent is for inclusive commitments only in developments of at least 10 to 30 units and for anything from 3% to 30% of the units to be for low-income families.

Sisulu said there was no agreement yet on the threshold, but that if it were measured by value rather than number of units, it could kick in for developments of as few as three or four units in very expensive areas.

Neil Gopal, head of the SA Property Owners’ Association, said the industry was not worried about the proposed legislation, but was still trying to persuade Sisulu on incentives rather than penalties.

Business Times

Article by: Brendan Boyle -