Around a third of the roughly six million residential properties on the Deed’s registry have been built by government as part of its housing subsidy programme.
This is a significant achievement as the provision of well-built shelters with running water, decent sanitation and electricity is critical for poor households to sustain themselves and even thrive. Beyond this, the subsidy programme transfers an asset to poor households, in all likelihood the most valuable asset households will ever own. The housing subsidy programme is therefore directly redistributive, having a direct and immediate impact on household wealth.
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But the value of that asset, and thus the extent of the wealth transfer is not fixed, nor is it equivalent to the cost of building the house. House prices are determined in a market where willing buyers and sellers interact. To maximise the value of that asset, and to maximise the magnitude of wealth transfer, local property markets must function well. However abundant anecdotal evidence indicates that in South Africa this is often not the case.
A house plus a title deed equals a financial asset
In formal housing markets, each property has a registered title deed. This verified record of ownership is key to creating a saleable asset against which a bank would provide a mortgage. Government estimates there is still a title deed backlog of over 520 000 units on subsidy houses built before 2014. The result is that the beneficiaries of these subsidies, many of whom have been living in their houses for years, still do not have title deeds in their names and cannot use their houses as security for a mortgage. Nor can they sell their houses to buyers who might need a mortgage.
In addition, informal transactions are common; buyers and sellers rely on a verbal agreement or a community-based organisation to witness a sale. These sales are convenient because buyers usually pay cash directly to the seller, avoid conveyancing fees and can move into the property immediately. However, there is significant risk, especially for buyers who have paid cash but have no legal proof of ownership. The result is that these off-register properties cannot be mortgaged and are also at risk of being re-sold by the original registered owner, an occurrence that is not uncommon. These houses are therefore likely to transact at lower values, impacting negatively on property market performance in lower income neighbourhoods.
Aside from title deeds there are other problems that impact on property markets. Local government is often not responsive and may not enforce by-laws, while households might have little incentive to comply with formal planning processes. For households that may have added rooms or dwellings to their properties without planning approval, mortgage lenders would be unlikely to lend against the property because the City could order a demolition.
Even when the property is mortgageable, it can be difficult for borrowers to access a mortgage because of high levels of borrower indebtedness or poor credit histories.
It is critical that these challenges be addressed in order to integrate lower income areas into the formal property market. While these challenges are significant, there is some support for the process. The government offers very generous capital subsidies to first time homebuyers who earn between R3500 and R22000, and there is growing interest from lenders who want to grow the market for mortgages.
Our work at the Transaction Support Centre (TSC) in Khayelitsha, in partnership with the Centre for Affordable Housing Finance in Africa, builds on this foundation. It focuses on helping clients resolve a range of housing related issues – including obtaining title deeds, securing planning permission for building activity, buying or selling properties formally, and accessing subsidies and mortgage loans. At the same time, we use our experiences to inform an on-going engagement with National Treasury, Human Settlements and the City as well as lenders, legal professionals and smaller developers. Through these engagements we try to address the underlying problems that limit the ability of households and private sector investors to grow and participate in the formal property market in affordable areas.
Words by Illana Melzer
Illana is the engagement manager at 71point4.