SA's big property squeeze

Johannesburg - The backlog in the provision of affordable housing is spiralling out of control, according to a report by the Banking Association of South Africa (Basa) which shows more than 661 000 affordable dwellings need to be built.

The backlog is most prevalent in the so-called gap market, where households - which qualify for 100% mortgage loans from banks - earn more than R3 500 a month, and where house sizes are under 80m².

If the backlog is to be reduced by 60% within five years, at least 132 000 units a year will need to be built, the report says.

But new units come to the market only in dribs and drabs, despite several developers being involved in the market. From January to July 2009 plans were approved for only 13 228 units under 80m². This is 29.3% less than the 18 713 approved in the corresponding period last year, Basa says.

Kecia Rust from the Centre for Affordable Housing Finance in Africa, a division of the FinMark Trust, says there are two segments with challenges in the affordable market.

"The one is households earning between R3 500 and R9 000 a month, which is too rich to be considered for subsidies, but too poor to buy a new house in the market," Rust says.

Then there are households earning between R9 000 and R12 000 a month which can afford the cheapest new dwelling of R232 000, but find too few of these houses are being built to meet the demand, Rust says.

"A house of about 56m² costs R290 000-odd and is affordable for a household earning R11 500 or so a month, at an interest rate of prime-plus-two percentage points, and a 100% mortgage over 20 years," she says.

There are therefore two vacuums in the market - one where nothing is affordable and the other where what is available is too expensive, says Rust.

Despite their incomes, 15% of the households earning between R3 500 and R8 000 a month, and about 4% of those earning between R8 000 and R12 000, live in informal housing.

Research by Basa in 2005 indicated the heart of the problem lies in the ineffectiveness of local authorities which are unable to drive the housing delivery process in the areas under their jurisdiction.

Their limited capacity causes delays in, among other things, approval of environmental impact studies, applications for township establishment, approval of plans and engineering designs and the installation of services.

David Wentzel, CEO of RBA Holdings, a major developer in the affordable housing market, says that at this stage operating capital and development finance are developers' biggest challenges.

Banks may well have relaxed credit for homebuyers, but the market is waiting to see whether the banks will also accommodate the developers, he says.

Thanks to the lower interest rates there has been a marked improvement in the number of applications every month. "In December last year the average was 60 applications a month; it is currently 130."

- Sake24.com

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