South Africa banks are confident that they will exceed the 42 billion rand low-cost housing finance origination target by year-end, an industry body said.

The low-cost housing finance loans commitment forms part of the 2003 Financial Sector Charter, in which the banking sector committed to originating loans to low-income households totaling 42 billion rand over the five-year period to the end of December 2008.

"The Banking Association (of SA) is confident that the industry will have exceeded its origination target a year in advance, and is equally confident the industry will be about 20% ahead of the its housing finance origination commitment by the end of the year," the body said.

It added that early indication pointed to a 52 billion rand in housing finance would have been originated by year-end because by the end of last year, loans worth 38 billion rand had been originated.

"This is a success story. We achieved a hell of a lot against all odds," said Pierre Venter, a low-cost housing official at the Banking Association of SA.

Venter said that the sector achieved this despite a "severe" shortage of housing supply, an affordability crunch due to interest rate increases and sharp increases in building costs.

Housing delivery is hampered by legislative red tape, with developers waiting up to three years for land to be converted into stands, while a 4% interest rate hike since June 2006 has shaved 20% off prospective homeowners’ purchasing power, the body noted.

Buyers also face a 25% y/y increase in building costs, which the association said was not due to increases in building materials or as a result of developers inflating costs, but due to the primary cost of serviced sites.

Cas Coovadia, MD of the Banking Association of SA, said the sector has been "able to overcome this obstacles through aggressively entering the home improvement, home extension and the rural housing markets by providing these families with non-mortgage loans, which have been used for housing purposes."

Of the 38 billion rand worth of loans disbursed by the four major banks up to the end of last year, 25.4 billion rand were in mortgages and 12.6 billion rand were in non-mortgages with 810,000 families having benefited from this initiative. Just over 200,000 families benefited through mortgages and 610,000 through non-mortgages.

"Given that other member banks include substantive non-mortgage lenders who provide housing related loans, such as African Bank and Capitec, I believe if their achievements are included, the 42 billion rand housing origination target has already been exceeded and that well over one million families have benefited from this initiative," said Coovadia.

The association estimates that the number of beneficiaries could be as high as 2 million by year end.

However, the body expressed concern about Eskom’s curbs on new property development, saying it has brought the primary residential housing market "to a standstill, which will have a serious impact on the provision of new houses".

Power supplier Eskom, which faces capacity shortages, said the approval of applications for power for new properties will take four to six months

Article by: Tiisetso Motsoeneng - www.sundaytimes.co.za