Human Settlements and Banks to Sign Memorandum to Accelerate Affordable Housing | Western Cape Government

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Human Settlements and Banks to Sign Memorandum to Accelerate Affordable Housing

2 March 2018

The Western Cape Department of Human Settlements yesterday signed a Memorandum of Understanding (MoU) with five financial institutions operating in the affordable housing market.

These institutions include ABSA Bank, First National Bank, Nedbank, Standard Bank and SA Home Loans. With the signing of the MoU, the parties pledged their commitment to accelerating the delivery of affordable housing in the Western Cape.

The inaugural signing of the document MoU marked the commitment of public-financial partnerships to work together to:

  • Increase financial offerings to clients in the middle and lower income brackets for affordable housing
  • Improve the creditworthiness and affordability of clients
  • Develop a minimum housing specification that would result in a more affordable housing unit.

The Gap and/or Affordable market refers to residents: with a monthly income between R3 501 and R15 000; who earn too little to access home loan finance; and also too much to access free housing subsidies from the government.

This public - financial partnership will also develop a more effective and user-friendly Financed Linked Individual Subsidy Programme (FLISP) application process.  All efforts by the parties are geared toward assisting the affordable market access finance and increase homeownership in the Western Cape.

With the limited funding available, Government can offer only partial assistance to this deserving group by providing to them a once-off capital subsidy, known as the Finance-linked Individual Subsidy Programme (or FLISP).

As the name indicates, this subsidy can only be accessed by those who have acquired mortgage finance from a financial institution. This requirement brings another critical market challenge to the fore.

Recently-obtained statistics indicate that about 86% of South Africans do have credit accounts, but that 40-odd percent of these have impaired credit records. According to the Office of Disclosure’s most recent report, the major reasons why home loan applications are being declined are due to affordability and creditworthiness.

At the ceremonial event on Thursday Western Cape Human Settlements Minister, Bonginkosi Madikizela said he was very passionate about accelerating affordable housing.

“This is one of the things I’m very passionate about in human settlements. In the Western Cape we have three strategic goals and the acceleration of affordable housing is one of them. For a very long time, the government focussed on free subsidised housing. It is my view that the free subsidised housing approach is really not sustainable. Because of budget cuts, we must now change our approach when it comes to free housing and only prioritises the most deserving people who have fallen through the cracks. These are people who can really not help themselves. We are also prioritising the upgrading of informal settlements which becomes an incremental development in the long run because if you provide people with basic services, they are able to save and build for themselves.

Minister Madikizela said the Western Cape housing backlog is currently about 600 000. He said the province also did a survey of the Gap market and the study revealed that there are currently about 400 000 people who need houses in this category.

“This is why this project is so important for me. We have put aside a sizeable amount of homes in our catalytic projects for the Gap market and are now piloting this project with our banking partners. The biggest problem we have is that many people in this space are heavily indebted, that is why they cannot get a bond from the bank. Another problem is that we are not building products that can be afforded by the people.

“This partnership must also reduce the price of a house so that people can afford it. It is time we look at different ways of assisting the Gap market because these are the people who are the heartbeat of the economy,” said Minister Madikizela.

BASA’s General Manager of Human Settlements, Pierre Venter, said the Banking Association of South Africa signed a MoU with the national Department of Human Settlements back in 2005.

“The design of that MoU was to see how the banking sector could deepen its penetration into the housing finance market. One of the focus areas in that particular MoU was to see how we actually get into the GAP market.

To be honest the FLISP product didn’t work particularly well over the years. When we did research we recognised three problems with it. First was consumer knowledge, because developers were not engaging with potential home owners. Second, the product price was very often above the affordability rate for the submarket segment because developers are building homes of R400 000, but the market needs affordable houses of R350 000 and below so that they can qualify in terms of their affordability. The other challenge was the long process that was taking an inordinate amount of time for subsidies to be approved,” said Venter.

He said after the banks engaged with the Western Cape Department of Human Settlements they “were thrilled” to find that the department was prepared to go all out and pilot a new process where we actually remove the delays that were previously experienced.

“We are also happy at the fact that they already set aside affordable units at their catalytic projects. We have a consumer who has been informed and we have a brand new process to work with. We are looking forward to rolling this out a scale,” said Venter.

He added: “From the banking sector’s perspective, we are excited that the Western Cape Department of Human Settlements has taken the bull by the horns and has agreed to go down on this innovative road with us.

We hope over the next few months, we are going to see other provinces coming on board. About 40% of South Africans fall into this market from an income perspective. The perceived demand is about 700 000 units and the real demand is what we have seen in our financial sector charter, which reveals that 20% of South Africans who could have qualified for a subsidy have actually used it and the other 80% have not. This initiative is going to bridge that gap and draw those households in. We are very excited about this and I think this fits right into our financial sector code.”

Voice notes and photographs are available on request.

Media Enquiries: 

Mrs Ntomboxolo Makoba-Somdaka
Spokesperson for Minister Bonginkosi Madikizela
Tel: 021 483-4798
Cell: 082 953 0026

Mr Nathan Adriaanse
Director: Communication and Stakeholder Relations
Tel: 021 483 2868
Cell: 083 263 1720