South Africa’s affordable housing sector faces challenges including access to finance which hinders growth.
According to the Banking Association of South Africa, affordable properties are priced between R600 000 and R914 000 and South Africans with lower incomes, struggle to access formal housing due to limited financing options.
“The key challenge that stands out as critical in crafting an appropriate solution to ensure consistent and sustainable growth of the sector is limited access to financing,” said Yedhvir Ramdhani, Senior Manager: Home Loans Strategy and Analytics at Nedbank.
“For low-income households, balancing affordability while managing credit indebtedness remains a challenge. Elevated levels of income inequality, poverty and job insecurity exacerbate this issue.”
Speaking at the recent Residential Investment & Development (Reside) Summit, Ramdhani said the challenge of inclusive growth is made worse by rapid and unmanaged urbanisation that has led to millions living in substandard housing.
He said given a high interest rate environment, rising cost of living and high inflation – it is not business as usual. The residential and banking sectors as well as other stakeholders need to find sustainable solutions to finance the affordable sector and meet the growing demands for urban housing.
“Policy makers need to apply a more expansive approach to governing framework, financing banks need to present more innovative and inclusive product offerings to specifically cater for affordable housing customer pain points.”
Professor Simphiwe Madikizela, Growth Head for Personal Segment at FNB said partnering with the Department of Human Settlements to effectively utilise the First Home Finance (FHF) which has been rebranded from First Linked Individual Subsidy Programme (FLISP) as a funding instrument to address affordability is an innovative way to assist potential buyers who are overly indebted.
“This funding mechanism blends the subsidy as a deposit to reduce the loan amount, and potentially, the interest rate could be lower as a result,” said Prof Madikizela.
He believes partnering with stakeholders like the National Housing Development Agency whose mandate is to identify well-located land for housing development purposes will assist the affordable housing sector.
Additionally, he said another innovative approach would be the facilitation of bulk infrastructure funding from local municipalities through Municipal Infrastructure Grant, as well as developers to create the much-needed housing stock with a view of addressing the backlog.
Ramdhani said addressing this challenge will be critical for the future growth of South Africa’s affordable housing market. “Policy interventions, innovative financing models and collaboration between stakeholders are essential to enable ownership at required levels in affordable housing in appropriate locations and densities.”
JSE-listed property developer Calgro M3 CEO Wikus Lategan said while financing is crucial, it is also important to highlight the broader impact of home ownership.
“Owning a home is a significant step towards wealth building, especially in the gap and affordable housing segments. Unlike renting, where costs typically increase annually, owning a home can become more affordable over time as interest rates should decrease and the homeowner pays down their mortgage, thereby building equity.”
Lategan said Calgro M3 develops homes that foster better living conditions, promote social stability, and contribute to economic development.
Calgro M3 considers affordable properties priced up to about R900 000. The company also offers properties priced below R600 000 for two-bedroom family apartments.
Buyers in the affordable sector include families and individuals, and are often employed in sectors including education, healthcare, public service, industrial workers, and retail. Their combined household income should be capable of supporting monthly home loan payments.
For a home priced at R600,000, a gross monthly household income of about R18 000 is required to qualify for a 100% bond. First Home Finance assists those earning between R 3 501 – R22 000 per month by subsiding their home purchases.
