SA's black homeowners are sitting on billions

A NEW study carried out by the South African Institute of Race Relations shows that the total residential property assets owned by black households in SA are worth at least R118bn.

The institute’s Frans Cronje, who conducted the study, says this is a conservative estimate and it could well be as much as R200bn.

Cronje says the potential wealth creation for black households is being obstructed by a lack of title deeds and access to finance.

He says if black households were able to borrow against just 5% of that R118bn, the figure would match national government spending on housing for the 2004-05 year. Cronje says the budget estimate for 2004-05 is R6,3bn.

“It shows how much value there is. That 5% would have an enormous impact on people’s lives.”

Cronje says one of the first issues that will need to be tackled if black people are to access even a small amount of this value is the title-deed process.

Financial institutions would also have to be encouraged to lend to township markets, says Cronje.

A separate study last year, which focused only on properties in townships, showed that a fifth of South Africans live in townships on properties worth altogether R68,3bn.

The study, which was funded by the FinMark Trust, the Ford Foundation, the national treasury, the Micro Finance Regulatory Council, USAID and the National Housing Finance Corporation, also found that few households in the townships used their homes to create wealth or income.

Barriers to these initiatives include access to title deeds, administrative and legal limitations to the transfer process, poor market information and limited access to appropriate credit.

The study conducted by the South African Institute of Race Relations looked beyond townships. Cronje says researchers took a conservative approach to the study, and looked only at houses built from bricks on separate stands. Flats were excluded, as were SA’s R3,9bn worth of shacks. They also looked at properties in areas as diverse as the former homelands and Sandhurst.

“We counted the number of black households that live in brick dwellings, and we then counted the number of black households who own brick houses.

“We then had to assign a value to the houses, which was the most difficult part of the project. We are talking about houses ranging from the upper levels of the real estate market right down to houses in former homelands and townships,” says Cronje.

He says it was decided to err on the side of the caution to ensure the figure they arrived at was a baseline for further studies, so each house was assigned a value of R31000, no matter where it was situated.

Cronje says access to title and finance are “enormous problems”. It is not known exactly how many houses black households own in SA and whether they have title deeds.

“If you do not have title deeds you cannot access finance,” he says.

One of the first things that needs to be done in an attempt to combat these problems is a survey of all of these properties.

Cronje says that the use of modern global positioning system technology should make it possible to identify the stands in SA.

“It will be a massive project, but it’s possible to survey stands in order to start granting titles.

“That’s a necessary step to getting the title deed administration system in working order.”

He says a second ingredient is a “very efficient” system free from corruption to take on the responsibility of granting title deeds.

“The scope for corruption is enormous. What happened with welfare grants is a warning about one of the hurdles that may confront the title deeds process.”

A third problem is access to finance and the state does not appear to have the resources or capacity to carry this responsibility on its own.

“The private sector, (particularly) banks, would have to get involved. Banks, quite rightly, will be hesitant about lending money to people if there is a high risk of the money not being repaid. There is a lot of high risk because of high unemployment,” says Cronje.

One possible way to tackle the finance issue is for government to start guaranteeing bank loans to previously neglected areas.

“Whether this is feasible, I can’t say,” he says.

One danger in this scenario is that people may default on payments safe in the knowledge that government would have to carry the burden, says Cronje.

Rather than tackling these three issues on a large national scale, it may be better to attempt them on a local scale.

“Maybe (government) can identify various communities, try the project out there and then take it from there with lessons learned,” he says. “If we are going to do this, a small-step approach is the one with the most promise.”

Cronje says financial institutions would more likely be brought on board if it was done on a small scale first as it would be easier for banks to monitor their loans

Article by: Nick Wilson - www.businessday.co.za