Home / General / Housing Finance in South Africa

Housing Finance in South Africa

Posted on April 18 2019 by Gert Minnaar in General

Against a backdrop of a sophisticated banking system, South Africa benefits from a well-developed housing finance sector and property market. A majority of the residential property market – 58 percent at the end of 2017 – includes homes valued at less than R600 000 (US$41 695). About a third of the total residential property market are estimated to have been fully-subsidised by the government.

South Africa also benefits from a world-class cadastral system. According to the 2018 World Bank Doing Business Report, South Africa is ranked 107th of 190 countries globally, in terms of how easy it is to register property. It takes 23 days to go through the seven procedures and costs an estimated 7.3 percent of the property value. Yet the registration of title deeds for government-subsidised properties remains a serious challenge which is currently being addressed via a targeted government programme.

Despite well-developed credit markets, access to mortgage finance is largely limited to high income earners and consumer indebtedness continues to be a concern. In 2007, 14.5 percent of households in South Africa had a mortgage, but by 2016, this had declined to 9.7 percent of households. Housing affordability also remains a critical challenge. In 2018, the cheapest, newly built house was estimated at R352 500 (US$24 496). Under these terms, the house would be affordable to only 34.4 percent of urban households. Low household incomes; poor credit records limiting access to finance; rising building costs; and scarcity of affordable, well-located land for human settlements development are all factors which contribute to the affordability challenge.

Government’s primary means of addressing the housing backlog and the housing affordability challenge has been focused on the supply side, providing houses to low income households as part of a comprehensive subsidised programme in which government is the delivery agent. Government interventions include social rental housing and a finance-linked subsidy targeted at the ‘gap’ market—to date, over 2.8 million households have received a state housing subsidy. However the backlog is massive – estimated at between 2.3 million and 3.7 million units – and annual delivery by government is clearly insufficient to meet demand. With a current population of nearly 58 million, it is estimated that 71.3 percent of the South African population will reside in urban areas by 2030.

To respond to the urbanisation challenge, in recent years there has been an increased focus on rental housing, including exploration of how government might support and facilitate of low income rental in backyards. A key means to unlock housing supply at the lower end of the market would also be to facilitate and promote resale. Furthermore, microfinance continues to be a growth area with significant potential, and non-governmental organisations have managed to roll out effective loan products to facilitate incremental building.