Housing Finance System In South Africa
Introduction:
The scale of the housing finance problem and the lack of delivery in South Africa is demonstrated by the demand for affordable housing and by the number of people living in slums and informal housing conditions. The crisis is further compounded by the unwillingness of traditional lenders to make loans to low-income earners for housing. On the demand side, the government prides itself on its impressive record of delivery of more than I.8 million houses since 1994. The backlog, however, is monumental as is the number of people under-housed or un-housed has grown rapidly from 2.4 million to 3 million households.
Economy:
The nature and scope of the housing finance system in South Africa is best understood by examining the country’s economic fundamentals. South Africa has the most sophisticated free-market economy on the African continent. It represents only 3% of the continent’s surface area, yet it accounts for approximately 40% of all industrial output, 25% of gross domestic product (GDP), over half of generated electricity and 45% of mineral production in Africa.
Economic Performance:
The South African economy grew by 2.2% during 2001, 3% during 2002; 1.9% in 2003; 2.9% in 2004, and the government expects it to grow by 3.6% in 2005 and 4% in 20065. This growth has been spurred on by the current macro-economic policy, the Growth, Employment and Redistribution6 that was implemented in 1996.
Demographics:
South Africa has a total population of 44.8 million of which 18.261,294 (39%) is economically active. According to a Labour Force Survey by Statistics South Africa only 11.91 million of the economically active are employed. The official unemployment rates stand currently at 26.5% of the country’s economically active population.
The HIV/AIDS Pandemic:
HIV/AIDS is a major health problem in South Africa. It has significant implications for housing finance and the economy in general. Various studies show increases in the percentage of the population with HIV/AIDS and it is estimated that one out of every nine South African has HIV/ AIDS. This problem is recognized by the government who has set aside a budget of R2.1 billion to fund an anti-retroviral drug provision program over the next three years. The amount allocated by government towards HIV/AIDS between 2004/2005 and 2006/2007 totals R12.3 billion.
HIV-AIDS and Housing Finance:
In the vast majority of cases, however, the security offered by a borrower is not sufficient and a sustainable income is crucial for the viability of the loan. In these cases, the bank requires life assurance, and if the applicant is HIV+, he/she experiences difficulty getting that insurance, and it is likely to be at a very high premium level. According to Ndinda, the security of tenure for individuals infected with HIV/AIDS is a critical issue in South Africa. She asserts that people infected with HIV-AIDS are most likely to lose their land and housing in the absence of life assurance policies.
Government Development Strategy and Housing Finance Before 1994:
By the early 1990s the Housing Finance Sector was fragmented, inconsistently funded, and lacked role definition and accountability. There were fifteen departments that dealt with Housing, namely one general affairs department, three own affairs departments, the department of Development Aid, four provincial authorities, and ten self-governing homeland authorities, and more than 60 national and regional state corporate institutions.
Lack of capacity:
The legacy of the past resulted in a depressed housing finance sector that lacked capacity both in terms of human resources and materials to speedily provide housing finance.
Non-payment of housing finance loans and service payment boycotts:
The 1980s were characterized by bond, rental and service payment boycotts, initiated by a civic movement and local communities, aimed at undermining the status quo. As a result of this, many households were reluctant and unable to re-commence paying bonds, rents and services.
Lack of end user housing finance:
For a number of reasons, including the non-payment of housing finance loans, service payment boycotts etc. many lenders are reluctant to lend to low-income families. Many low-income families are unable to access housing finance loans, even if they could afford to. The problem is made worse by phenomena such as redlining and discrimination, poorly designed credit instruments, and an unwillingness by households to save.
Conclusion:
Housing finance mechanisms and reforms in South Africa between 1994 (Record of Understanding) and 2005 Financial Sector Charter’s (Memorandum of Understanding) reflects a better understanding and willingness to deal with the management of risks in both the public and private sectors. Building capacity for financial intermediation in the housing sector is a responsibility of all, if we want to expand our outreach and access.
Borrower education is the responsibility of all players in the market as a way of managing risks. The type and level of borrower education must reflect the current risks in the market. It is important to educate and empower consumers, potential borrowers, and existing borrowers about their role, responsibilities and obligations as a homeowner or as an aspirant home buyer and to recognize the value of their assets.