leveraging housing finance - gpf · paradigm regression paradigm paralysis paradigm shift paradigm...

Strategic Research into LEVERAGING AFFORDABLE HOUSING FINANCE FOR GAUTENG PARTNERSHIP FUND

Investment ClimateInvestment Climate

The STRATEGIC FORUMSTRATEGIC FORUM ScenariosFOR THE BUILDING INDUSTRY: 2010-2020

BOUYANT GROWTH> 5 % PA

GDFI > 25 % OF GDP

SUBSIDIES3 - 5 % OF BUDGET

AVERAGE GROWTH 2 - 5 % PA

GDFI 20 - 25 %OF GDP

SUBSIDIES2 - 3 % OF BUDGET

LOW GROWTH0 - 2 % PA

GDFI 15 - 20 %

OF GDPSUBSIDIES

1 - 2 % OF BUDGET

NEGATIVE GROWTH< 0 % PA

GDFI < 15 %OF GDP

SUBSIDIES< 1 % OF BUDGET

NO

CO

NF

IDE

NC

E L

OW

A

VE

RA

GE

H

IGH

CO

NF

IDE

NC

ER

isk

Avo

idan

ce

Ris

k A

vers

ion

R

isk T

ole

ran

ce

Ris

k T

akin

g

PROPERTY A POOR INVESTMENT / AVERAGE / GOOD / A PREFERRED INVESTMENTParadigm Regression Paradigm Paralysis Paradigm Shift Paradigm Reinvention

HIGH ROAD HIGH ROAD

COLUMBUS SCENARIOCOLUMBUS SCENARIOProperty a PREFERRED Investment

Home Ownership PREFERRED

BUOYANT GROWTH

Backlogs eliminated by 2015

UPPER MIDDLE ROAD UPPER MIDDLE ROAD

APOLLO SCENARIOAPOLLO SCENARIOProperty a GOOD Investment

Home Ownership DESIRED

AVERAGE GROWTHErosion of Backlogs

LOWER MIDDLE ROADLOWER MIDDLE ROAD

SOYUZ SCENARIOSOYUZ SCENARIOProperty an AVERAGE Investment

Home Ownership QUESTIONED

LOW GROWTH

Keeping pace with Population

LOW ROAD LOW ROAD

CHALLENGER SCENARIOCHALLENGER SCENARIOProperty a POOR Investment

Home Ownership AVOIDED

NEGATIVE GROWTHIncreasing BACKLOGS

Inv

es

tor

Co

nfi

de

nc

eIn

ve

sto

r C

on

fid

en

ce

Trends in the Building Industry are inextricably responsive to, and influenced by INVESTMENT

CLIMATE, INVESTOR CONFIDENCE and PROPERTY DELIVERY.

Trends in the Building Industry are inextricably responsive to, and influenced by INVESTMENT

CLIMATE, INVESTOR CONFIDENCE and PROPERTY DELIVERY.

Property

deliv

ery

Property

deliv

ery

Dr. Llewellyn B Lewis

P r i n c i p a l C o n s u l t a n t B M I B u i l d i n g R e s e a r c h S t r a t e g y C o n s u l t i n g U n i t c c P O B o x 7 8 4 1 3 3 S A N D T O N 2 1 4 6 S o u t h A f r i c a T e l . I n t . ( 2 7 1 1 ) 8 8 4 - 2 0 7 5 T e l . L o c a l ( 0 1 1 ) 8 8 4 - 2 0 7 5 F a x L o c a l 0 8 6 6 4 7 2 4 9 4 r e s e a r c h @ b m i - b r s c u . c o . z a s t r a t e g y @ b m i - b r s c u . c o . z a w w w . s t r a t e g i c f o r u m . c o . z a

The Affordable Housing delivery process is part of the Sustainable Integrated Development strategy of Government. The strategy followed by GPF as a Partner of choice in the mobilization and facilitation of funding for the delivery of affordable housing is mindful of this dynamic in the market place. In the assessment of financing Partnership opportunities GPF is committed to support Government policy in creating Environments for Investment and great experiences in quality environments. It is recognized that a collaborative effort is required between Government, Private Sector and the Community, involving all types of housing solutions and tenure options to solve the housing crisis. GPF is also mindful of the importance to align its vision with that of all the Stakeholders in the Affordable Housing environment.

__________________________________________________________________________________________Leveraging Affordable Housing Finance

Page 1

BMI

Studium Ad Prosperandum

Voluntas in Conveniendum

BUILDING RESEARCHSTRATEGY CONSULTINGUNIT cc

Reg. No. 2002/105109/23

•

BMI



BUILDING RESEARCH

STRATEGY CONSULTING

UNIT cc

•

BMI•

BMI•

BMI•

BMI



BUILDING RESEARCHSTRATEGY CONSULTINGUNIT cc

Reg. No. 2002/105109/23

•

BMI



BUILDING RESEARCH

STRATEGY CONSULTING

UNIT cc

•

BMI•

BMI•

BMI•

BMI•

BMI•

BMI•

All rights reserved. No part of this document may be reproduced, photocopied or transmitted in any form, nor may part of this document be distributed to any person not a full-time

employee of the subscriber, without the prior written consent of the consultants. The subscriber agrees to take all reasonable measures to safeguard this

confidentiality.

Although reasonable care has been taken to ensure the accuracy of this report, no legal responsibility can be accepted by BMI Building Research Strategy Consulting

Unit cc for the information and views expressed herein.

© May 2012

BMI Building Research Strategy Consulting Unit ccAll rights reserved


Page 2

GAUTENG PARTNERSHIP FUND (GPF) LEVERAGING HOUSING FINANCE IN SUSTAINABLE INTEGRATED HOUSING DEVELOPMENTS

RESEARCH BY BMI BUILDING RESEARCH STRATEGY CONSULTING UNIT CC

INDEX PAGE

1. INTRODUCTION 3

2. THE SUSTAINABLE INTEGRATED HOUSING ENVIRONMENT 5

3. THE AFFORDABLE HOUSING CHALLENGE 12

4. CURRENT REALITY 23

4.1 The Dynamics of Building Industry activity 23 4.2 The Dynamics of the formal Residential market 25 4.3 The Dynamics of the Affordable Housing market and the Role of GPF 27

5. THE DYNAMICS OF THE RESIDENTIAL PROPERTY MARKET 34

5.1 The Dynamics of the Mortgage Bond Market 34 5.2 The Dynamics of the Rental Market 36 5.3 The Dynamics of the Property Market 43

6. FORCES AT PLAY IN AFFORDABLE HOUSING 51 6.1 Demand side forces 51 6.2 Supply side forces 55 7. ALIGNMENT


Page 3

GAUTENG PARTNERSHIP FUND (GPF)

LEVERAGING HOUSING FINANCE IN SUSTAINABLE INTEGRATED HOUSING DEVELOPMENTS RESEARCH BY BMI BUILDING RESEARCH STRATEGY CONSULTING UNIT cc

1.

INTRODUCTION

The Vision of the Gauteng Partnership Fund is To be the pre-eminent partner in the mobilisation and optimisation of alternative funding; and a leading catalyst in the development of affordable housing in Gauteng. The Mission of the Gauteng Partnership Fund In achieving the above vision, the GPF defines its mission as follows: As a development finance institution, we pro-actively leverage affordable housing, by: � Facilitating dynamic collaboration with the eco-system of public and private sector

partners, � Securing new and innovative funding streams, � Gearing private sector finance to ensure better bankability of projects, � Ensuring accountability, monitoring and efficiency in the long-term management of

projects, thereby ensuring that housing financiers enter the affordable housing market on a sustainable basis – in support of sustainable human settlements and quality household life. (www.gpf.org.za)

Mandate The Gauteng Partnership Trust, trading as the Gauteng Partnership Fund (GPF) is a Trust which was established in 2002 by the then, Gauteng Department of Housing. It is listed as a Schedule 3C public entity under the Public Finance Management Act (PFMA). The GPF is further governed by its trust deed. On inception in 2002, the central mandate of the GPF was to “resuscitate the social housing market with a focus on rental housing in Gauteng”. In 2008 and beyond, this originally narrower definition has been operationally expanded and broadened by the Board and DLGH to enable the GPF to operate across the whole affordable housing value chain; the goal being to facilitate, catalyse, secure and optimise investment into affordable housing within the Gauteng Province, in support of Provincial Priorities and Outcomes. In delivering upon this mandate, the GPF defines its target market as: ”those defined as beneficiaries of the state, by current definition.” The level will track CPI annually. The GPF key goal is to facilitate and catalyse the development of affordable housing in Gauteng, through leveraging key strategic partnerships with full value chain stakeholders, and thereby innovating financial investment opportunities. (www.gpf.org.za) It is understood that the GPF has a specific mandate to: � Form partnerships to address blockages and bottlenecks across the entire lower-cost

housing service delivery value chain; � Facilitate integrated developments as per the sustainable human settlements policy

framework.


Page 4

� Normalise the Social Housing Market in Gauteng through innovative funding interventions (as a mechanism to entice capital market investment into this market);

� Provide enhanced gearing for private commercial funding; � Facilitate private bank funding into this sector. It is within this context then that the GPF defines its purpose and strategic intent. (www.gpf.org.za) Strategy The Gauteng Partnership Fund, is aligned to both national and provincial strategic priorities and outcomes, and the Department of Local Government and Housing (DLGH) Strategic Plan. In keeping with the focus of the DLGH, the GPF supports Provincial Outcome 6, as a proactive contributor to the development of sustainable human settlements and quality of household life in Gauteng. Within Outcome 6, the GPF supports the following provincial outputs 1. Accelerated delivery of housing opportunities 2. More efficient land utilisation 3. Improved property market

The Gauteng Partnership Fund envisages that in achieving its mandate, purpose, vision and mission outlined above, its overarching strategic goal is to increase, leverage and involve private sector funding for affordable housing in Gauteng. In order to realise this goal, the GPF seeks to enhance its visibility and credibility in the market through strategic collaboration with a well-informed stakeholder base (both internal and external stakeholders); play a catalytic role in shaping the affordable housing agenda in Gauteng, and provide timely and accurate performance information and data on all aspects of its work. This enhanced recognition will be because of success in ensuring the facilitation and funding of affordable housing development in Gauteng, and building a self-sustaining and relevant business model, which enables the GPF to speak authoritatively on the issues facing the


Page 5

affordable housing segment of the market. This will require the GPF to ensure the optimised management of its own internal resources and processes and will necessitate deal flow and the creation of new revenue streams; and a focus on cost efficiencies and the consolidating of provincial resources to benefit from economies of scale. It is realised that to achieve this lofty goal, the GPF must equally focus on effective and excellent management of its own internal processes and systems, and on attracting, retaining and developing the best possible resources, able to contribute meaningfully to the achievement of these stated goals. In this light, the Strategic Objectives of the Gauteng Partnership Fund are: 1. To enhance the visibility and maintain the credibility of the GPF. 2. To ensure the facilitation of, and funding for, housing developments 3. To ensure a sustainable and effective operating model. 4. To ensure optimised financial and systems management and good governance. 5. To attract and retain skilled performing individuals to ensure the achievement of GPF

strategic objectives.

2. THE SUSTAINABLE INTEGRATED HOUSING ENVIRONMENT

The Strategic Development rationale provides the context in making sense of the sustainable integrated housing environment. The unique environmental forces in the South African housing domain leads to the opportunities and threats peculiar to this market. The resources and capabilities available in Government and the Industry lead to the strengths and weaknesses in the system. This is filtered through the development paradigm in the development of the industry foresight, informed by an understanding of the environment and the industry. The contribution of the various stakeholders is premised on the Vision and Mission of the National Department of Human Settlements: VISION A nation housed in sustainable human settlements with access to socio-economic infrastructure. MISSION To establish and facilitate a sustainable process that provides equitable access to adequate housing or all within the context of affordability of housing and services and access to social amenities and economic opportunities.


Page 6

The Affordable Housing delivery process is part of the Sustainable Integrated Development strategy of Government as shown in the graphic. The strategy followed by GPF as a Partner of choice in the mobilization and facilitation of funding for the delivery of affordable housing is mindful of this dynamic in the market place.

In the assessment of financing Partnership opportunities GPF is committed to support Government policy in creating Environments for Investment and great experiences in quality environments.


Page 7

VISION•To develop an ambitious, city-within-a-city mixed-use developments of excellence, symbolic of the destination –‘City of Africa’.

•The developments encapsulate an international city-within-a-city quality of lifestyle in mixed-use developments and attracts a cosmopolitan group of buy-to-live residents, professionals and corporates to sustainable MIXED USE INTEGRATED DEVELOPMENT precincts that are vibrant and alive 24 hours a day.

MICRO ENVIRONMENT:MIXED USE INTEGRATED

DEVELOPMENT

VISION • A nation housed in

sustainable human settlements with access to socio-economic infrastructure

MISSION• To establish and facilitate a

sustainable process that provides equitable access to adequate housing or all within the context of affordability of housing and services and access to social amenities and economic opportunities.

• Typified by that of The City of Johannesburg, that it will

• work with all partners and stakeholders to lead an Inner City Housing Plan that provides or ensures at least 50 000 (and ideally 75 000) new residential units by 2015, either in the Inner City or near to it. On rough estimates of demand it is projected that some 20 000 of these units must be affordable to households in lower income bands if the collective problem of a stressed Inner City residential environment is to be solved.

• The City of Johannesburg envisages the creation of the largest mixed income community in the country, built on the basis of inclusionary housing.

VISION • A province where all

households inhabit quality homes in vibrant and sustainable communities.

MISSION • To provide appropriate

quality services, tenure, housing in targeted precincts and communities working in partnership with stakeholders.

VALUES • Batho Pele • Discipline • Transparency • Independence • Accountability • Responsibility • Fairness • Social Responsibility

MACRO ENVIRONMENT: GDHS

MACRO ENVIRONMENT: LOCAL AUTHORITIES

MACRO ENVIRONMENT: NDHS

STAKEHOLDER VISIONS

THERE IS ADDED VALUE THROUGH THE ALIGNMENT OF THE VISIONS OF MIXED USE INTEGRATED DEVELOPMENTS AND INVESTORS, NDHS, GDHS, PROVINCES AND LOCAL AUTHORITIES

It is recognized that a collaborative effort is required

between Government,

Private Sector and the Community, involving all types of housing solutions and tenure options to solve the housing crisis. GPF is also mindful of the importance to align its vision with that of all the Stakeholders in the Affordable Housing environment.

The matrix of housing solutions for Household Incomes (HHI) across the housing spectrum is shown in the next graphic. It is noted that Public Private amenities are required in every housing solution.


Page 8

AFFORDABLE RENTAL SOCIAL HOUSINGSUBSIDY AND CREDIT LINKED

AVERAGE COST R58 - R150 000

(20%)CONTRACTOR BUILT

HHI R1500 – R3500

PUBLIC (RDP) GIVEAWAY HOUSINGSUBSIDY FUNDED

AVERAGE COST < R58 000


HHI < R1500 PM

ENTREPRENEURIALRENTAL SOCIAL HOUSING MORTGAGE LINKED AVERAGE COST

R150 000 – R325 000


HHI R3500 – R10000

ENTREPRENEURIALRENTAL SOCIAL HOUSING MORTGAGE LINKED AVERAGE COST

> R325 000


HHI R10000 – R15000.

SUSTAINABLE INTEGRATED DEVELOPMENT

COMPETITIVE POSITIONING: MIXED USE INTEGRATED DEVELOPMENTS

PUBLIC/PRIVATEAMENITIES

Public/Private Partnerships,

Schools, Clinics,

Shopping Centres, Offices,

Industrial.

CONTRACTOR BUILT

The competitive positioning of Mixed Use Integrated Developments includes the Residential and Non Residential components. It can be noted that the Residential component is spread across the segments. The Non Residential sector is related to the Residential (as a percentage of m2). The different segments of Non Residential are also spread across the total of the sector.


Page 9

LOCALITYACCESSIBILITY

TRANSPORTIMPACT

BRANDINGUSP

MARKETINGPROMOTION

BUILDINGSTYLE

THEMATIC DESIGN

STANDARDS

ECOLOGICALIMPACT

FACILITIESMANAGEMENT

SECURITY

INVESTMENTFEASIBILITYAMENITIES

PUBLIC SPACES

LANDSCAPINGGARDENS

PAVING

OPTIMALMIXED USE

RESIDENTIALAND

NON RES

EVENTSATTRACTIONS

UNIQUE FEATURES

ADDED VALUE ?

ADDED VALUE ?

ADDED VALUE ?

Market SegmentsValue chain

SCHOOLS

OFFICES

LUXURY HOUSINGAPARTMENTS

FLATSRETIREMENT HOUSING

MIDDLE INCOME HOUSINGAFFORDABLE HOUSING

RETAILING, RESTAURANTS

CLINICS, HOSPITAL

• 30% Affordable “GIVE AWAY” RDP housing development

(< R75 000); • 20% Middle-income GAP housing (R75 000-R150 000);

• 40% Middle income GAP housing (R150000 – R325 000);• 10% Middle income Bond Housing units (R325 000 – R450 000 +).

COMPREHENSIVE MIXED-USE DEVELOPMENT OFFERING

HOTELS, CONVENTION CENTRES

THE HOUSING CHALLENGECOMPETITIVE POSITIONING: MIXED USE INTEGRATED DEVELOPMENTS

THE MIXED USE INTEGRATED DEVELOPMENT is the preferred destination to Corporate South Africa.

Non Residential m2 = 33,9% of Residential m2. • Offices and Showroom space (28,94%);

• Retail and Mixed use Developments (28,24%); • Warehouse and Commercial (42,82%).

The MIXED USE INTEGRATED DEVELOPMENT, will serve all types of residents, workers, shoppers and tourists. Proximity to a Railway Station an advantage.

INDUSTRIAL, WAREHOUSING

The previous graphic shows the competitive positioning of Mixed Use Integrated Developments from the point of view of the Residential component. It will be noted that the Rental Market can operate from a Household Income (HHI) of > R1500 per month and up to R15000 per month. This would involve Housing solutions from R75000 to R450 000 and upward.

There has been a global movement towards a preference for Rental Housing instead of purchase. Rental is particularly relevant to the lower to middle income groups from a Household Income of R1500 – R15000 per month.


Page 10

It is within this environment that the development facilitation process takes place. GPF provides venture capital funds and helps to mobilise Institutional funding for Affordable Rental or Entrepreneurial Rental Social Housing.

Financial Institutions provide

development finance and typically the developer provides equity in the form of serviced or un-serviced land as well as the resources and skills to design, negotiate the contract and manage the project on behalf of the

NEWCO consortium. The strategy to leverage affordable

housing finance followed by GPF as a Partner of choice in the mobilization and facilitation of funding for the delivery of affordable housing is premised on the development facilitation process. In the development process the developer may have access to the land as owner or part owner and can access Institutional subsidies for Affordable Rental or Entrepreneurial Rental Social Housing.


Page 11

GPF facilitates the process through participation in the provision of Venture Capital Funding. A SPV may be formed between GPF as Investment Partner, a Financial Institution or Institutions and the Developer. The SPV would then appoint or outsource the management of the development, thus ensuring a quality environment.

The development facilitation process provides Win-Win potential to all participating Stakeholders.

• Leveraged Venture Capital Funds by GPF provide potential for lowering Cost of Affordable Housing Finance;

• The Bank/s benefit through Financial Charter (FSC) Points, and risk sharing (Bankruptcy remote); There is an exit or re-mortgaging potential after second exit point;

• The DEVELOPER has potential to buy out Banks and Investor through re-mortgaging and to become sole Property Landlord at second exit point;

• The Contractor can focus on productivity and quality and is assured of timeous payment;

• The DHS Vision of Sustainable Integrated Housing is achieved;

• The Tennant can develop credit rating to obtain mortgage for Home Ownership should they so desire (Banks or NHFC);

• Newco can outsource to Professional Managing Agent (e.g. JHC, Trafalgar);

• Commitment and sustainability of Institutional Funding provide NEWCO with major Differentiating feature;

• The Investor has the option of exit at Second Exit Point with Funds recycled into other developments.

GPF adds value to the process through:

• Ensuring that the NDHS vision of integrated sustainable developments are adhered to in terms of design philosophy and community needs;

• The provision of leveraged financing thus lowering the cost of financing;


Page 12

• The provision of venture capital and risk sharing at least up to the completion of construction and as long as required thereafter;

• Participation and overseeing the management of the rental stock of the development to ensure good governance and to protect its investment.

3. THE AFFORDABLE HOUSING CHALLENGE


Page 13

CUMULATIVE PERCENTAGE OF LSM G1- 6 AND LSM G7-10 HOUSEHOLDS

EARNING LESS THAN A GIVEN INCOME INCOME : 2010(Source: AMPS 2009, BMI-BRSCU Workings)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1-499 500-799 800-1499 1500-1999 2000-2499 2500-3499 3500-5999 6000-8999 9000-10999 11000-

11999

HOUSEHOLD INCOME CATEGORIES

CU

MU

LA

TIV

E P

ER

CE

NT

AG

E

LSM GROUP 1-6 HOUSEHOLDS

LSM GROUP 7-10 HOUSEHOLDS

INCOME GAP

Highest Gini coefficient in the World.

THE HOUSING CHALLENGEThe Income Gap: 2011

The housing challenge is the consequence of the lack of affordability and the high unemployment rate. This has led to the introduction of subsidies which has resulted in the building of over 2 million affordable houses since 1994. Nevertheless the backlog is still some 2,3 million units and the housing delivery will have to be increased substantially over the next 15 years to eliminate the backlog.


Page 14

• Affordability: High inequality of income(Based on AMPS 2010)

• Ambitious Housing Code

• Lack of end-user finance– R1 Billion Mortgage Guarantee fund

– Reluctance of formal financial institutions to lend in certain areas and to certain groups

• New trend toward facilitating Rental Housing Development

Socio-political and environmental issues

• Backlog

• High expectations

• Lack of delivery

• Poor consumer education

• Low levels of household expenditure dedicated to housing

• Limited perceptions of housing as an investment

• Non-payment

• Crime and violence

• Other issues, such as traditional tenure

• Trend towards preference for Rental due to preference for mobility et al

Income category Percentage Number

households

� R10000

R3500-R10000

R2500-R3500

R1500-R2500

R800-R1500

R0-R800

25,0%

32,9%

9,1%

12,5%

15,3%

5,3%

3,4m

4,5m

1,2m

1,7m

2,1m

0,7m

Total 100% 13,6m

South Africa has probably the most ambitious housing subsidy policy in the

world, and its success in delivering houses

these past 19 years to a population previously excluded from the property

market is internationally renowned, hugely

respected, and the envy of many nations. (Kecia Rust, Feb 2010)

(Based on Kecia Rust, Finmark Trust)

1 723 544 872 093 3 449 359 2 426 746 1 320 766 1 021 479 287 475 989 673 1 487 221

12

.69

%

6.4

2%

25

.40

%

17

.87

%

9.7

3%

7.5

2%

2.1

2%

7.2

9% 10

.95

%

0%

5%

10%

15%

20%

25%

30%

35%

40%4.88 5.06 4.04 4.84 4.97 4.44 4.98 4.68 4.04

0200 000400 000600 000800 000

1 000 0001 200 0001 400 0001 600 0001 800 0002 000 0002 200 0002 400 0002 600 0002 800 0003 000 0003 200 0003 400 0003 600 000

- E

aste

rn C

ap

e

-M

ph

um

ala

ng

a

- G

au

ten

g

-K

wa

zulu

/Na

tal

- N

ort

hw

est

- N

ort

he

rnC

ape

- L

imp

op

o

- F

ree

Sta

te

We

ste

rn C

ap

e

PE

RC

EN

TA

GE

Household Size

NU

MB

ER

S O

F H

OU

SIN

G

TOTAL DWELLINGS IN SOUTH AFRICA BY PROVINCE : 2011(Total = 13,578 Million Housing Units)

(Source: StatsSA, AMPS 2010, BMI-BRSCU Workings)

It will be shown later that even if housing delivery is increased to nearly 425 000 per annum by 2020 resulting in the provision of over 3 million units by that time, the backlog will still be over one million units. This has inevitably led to the conclusion that rental housing should be encouraged, because not everybody can or wants to own a home. The graphic highlights the issues and confirms the trend towards preference for rental due to the preference for mobility.

Providing affordable housing and addressing the spatial disparities of South Africa’s urban landscapes are policy priorities. More than 3 million housing units have been delivered since 1994, but there is a remaining backlog estimated at 2.1 million houses. Population growth trends, including continued urban-rural migration patterns, put pressure on cities to adapt and expand infrastructure quickly. Nearly 70 per cent of the housing backlog is in urban areas. While demand is increasing, the pace of delivery has declined, partly due to higher building and land costs. The persistence of large informal settlements has necessitated a shift towards developing serviced sites, security of tenure and affordable rental housing. To support this outcome, R50.5 billion is allocated for low-income housing and upgrading informal settlements in secondary cities, as well as R27 billion for upgrading informal settlements in large cities over the next three years. (2012 Budget Review, Chapter 7).


Page 15

3 491 746

4 553 622

1 013 782

395 426

125 312

641 078

1 318 921

1 585 199

16 420

4 622

391 203

41 022

13 578 355

House or brick structure on a separate stand or yard < 80 m2

House or brick structure on a separate stand or yard > 80 m2

Flat in block of flats + Town/cluster/semi-detached house (simplex:duplex: triplex)

House/flat/room in back yard

Room/flatlet not in back yard but on a shared property

Informal dwelling/shack in back yard

Informal dwelling/shack NOT in back yard e.g. in an informal/squattersettlement

Traditional dwelling/hut/structure made of traditional materials

Caravan or tent

Private ship/boat

Workers Hostel/Bedroom

Other

TOTAL

Housing Stock in South Africa by type of Dwelling: 2011: Units(Source: StatsSA, Census 2007; Extrapolation to 2011 by BMI-BRSCU Workings)

Black, 10 438 205, 77%

Coloured, 1 018 273, 7%

Asian, 343 142, 3%

White, 1 778 735, 13%

DWELLING UNITS OWNED OR OCCUPIED BY RACIAL GROUP: 2011: UNITS(Total = 13 578 355)

(Source: StatsSA, Census 2007; Extrapolation to 2011 by BMI-BRSCU Workings)

BLACKS OWN OR OCCUPY 77% OF THE

DWELLINGS IN SA BY NUMBER

Nation building

through Home

Ownership

The total dwellings in South Africa (all types) exceeds 13,5 million with formal urban housing some 9,6 million units. The value of Residential property (land included) exceeds R5 Trillion, compared with Non Residential Building of just over 2 Trillion. All property has a value including traditional dwellings built of traditional materials. This represents the wealth of the nation.

Blacks own or occupy 77% of the dwellings in South Africa by number of units, Asians 3%, Coloureds 7% and Whites 13%. Home ownership has an important role to play in Nation Building.


Page 16

HOME OWNERSHIP PER LIVING STANDARDS MEASURE GROUP: 2010(Source: AMPS 2011, BMI-BRSCU database)

0

200

400

600

800

1000

1200

1400

1600

1800

2000

LSM G1 LSM G2 LSM G3 LSM G4 LSM G5 LSM G6 LSM G7 LSM G8 LSM G9 LSM G10

LIVING STANDARD MEASURE GROUP

HO

US

EH

OL

DS

*1000 (

BA

R)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1,351 1,575 1,885 2,582 3,515 6,090 9,644 13,262 18,223 27,647

AVERAGE HOUSEHOLD INCOME (R/M)

PE

RC

EN

TA

GE

(L

INE

)

OF

HO

US

EH

OL

DS

Ow

nin

g t

heir

Ho

mes

in

LS

M G

rou

p

7,038 Million Households in

LSM Groups 1-6 (76,97%) own

their own Homes

3,220 Million Households in LSM

Groups 7-10 (76,25%) own their own Homes

Home ownership is high at over 76% for both LSM Groups 1-6 and 7-10.

Affordable housing

comprises 90% of the annual housing need (in numbers) and 53% of total housing invest

Affordable housing

comprises 53% of total housing investment.


Page 17

1835 3130 3670 3778 4210 2591 2051 2159R 0

R 200 000

R 400 000

R 600 000

R 800 000

R 1 000 000

R 1 200 000

R 1 400 000

R 1 600 000

R 1 800 000

LU

X/L

US

H

0

500

1 000

1 500

2 000

2 500

3 000

3 500

4 000

4 500

11000-11999 12000-13999 14000-15999 16000-19999 20000-24999 25000-29999 30000-39999 40000+

HO

US

E P

RIC

E W

HIC

H C

AN

BE

AF

FO

RD

ED

* *E

xclu

din

g c

ost

of

sta

nd

House Type

UN

ITS

Household Income

NEW HOUSING NEED PER (HIGH) INCOME CATEGORY AND AFFORDABILITY : 2011(Source: AMPS 2010, BMI-BRSCU Workings)

Housing Provision (Units) Affordable House at 9,5% Interest Rate

Total number of units across the housing spectrum = 249 756

Total number of Upper Middle to Luxury Units = 23 424

Due to the inequality in income the housing profile is skewed to the left. The major housing

need is for housing costing less than R325 000 for those 75% of households earning less

than R10 000 per month.

The total number of units across the housing spectrum in 2011 was 249 756. Of these there

were some 23 424 units costing more than R325 000, for those households earning more

than R11 000 per month.


Page 18

In the Affordable and Private Housing spectrum the relationship between Household Income

and affordability is illustrated across the entire income and housing solution spectrum. It is

evident that 48,14% of households earn less than R3 500 and qualify for houses costing up

to R150 000. Less than 10% of households earn more than R11 000 pm and qualify for a

house costing more than R325 000.


Page 19

-80%-70%-60%-50%-40%-30%-20%-10%0%10%20%30%40%50%60%70%80%90%100%110%120%130%

Gold

bo

om

SA

SO

L II

SA

SO

L III

Auste

rity

packa

ge

Ru

bic

on

sp

ee

ch

De

bt sta

nd

still

Eco

no

mic

re

covery

Ma

nde

la's

re

lea

se

De

mocra

tic E

lectio

n

Tra

nsitio

n to

De

mo

cra

cy

Cu

rren

cy c

olla

pse

Worl

d T

rade

Ce

ntr

e

BN

G H

ou

sin

g P

rog

ram

me

Sub

Pri

me

Cri

sis

(N

CA

)

0

50 000

100 000

150 000

200 000

250 000

300 000

350 000

400 000

450 000

19

79

19

80

19

81

19

82

19

83

19

84

19

85

19

86

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

Y/Y

Pe

rce

na

tag

e C

ha

ng

eDefining Events

R M

illi

on

s (

Cu

rren

t V

alu

e)

Total Mortgage Loans and Readvances: 1979-2011 (Current Values) (Source: SARB, BMI-BRSCU Workings)

R233 Billion taken out of the system

in two years!

IncomeHouse cost

% pop

(2110)

Estimated backlog

Ownership Rental

>R11000

“Normal”

Suburban > R325 000

9,66%

(should be 21,7%)

40-60 000

(unintended consequences)

Banks reluctant

to lend. Delivery

down to 23423 pa (s/b 35048)

Declined 80% from 2005-2011.

(9328-1874)

R11 000 Entrepreneurial

Rental Social Housing

Potential

111 682 Units pa

R325 000 42,2%

(should be

36,2%)

± 850 000 units

<R325 000 and growing

Average

118912 units

delivered annually

(2002-2011)

Social housing stock: <75 000

units total

nationally

rental

R3 500

Affordable

Rental

Social

R150 000 10,41%

(should be 9,1%)

Affordable Housing Backlog About 2,3 mio units

26 245 units

delivered in

2011

Some private

sector rental:

inner city & backyard

R2 500 Housing

Programme

Potential

62 152 Units pa

R125 000 14,2%

(should be

12,5%)

± 2,3m subsidised units delivered to date

35 907

subsidised

houses

delivered in 2011

Backyard

rental; informal

settlement;

overcrowding

R1 500

R0

R75 000 23,5%

(should be

20,6%)

59 268

subsidised houses

delivered in

2011

Backyard

rental; informal settlement;

overcrowding

G

A

P

(Based on Kecia Rust, Finmark Trust)

THE HOUSING CHALLENGEThe housing opportunity spectrum: 2011

The housing opportunity spectrum is put into perspective in the above graphic. It is evident

that the Rental market is historically not well served in the HHI range below R11 000 pm for

houses costing less than R325 000. This is mainly backyard rental or informal settlements.

The Rental market in the HHI range above R11 000 pm is under threat because the rental

stock is not being added to in sufficient numbers. Typically this market is provided for by

individual investors in the buy-to-let sector and not by institutional investors. There is not one

listed property fund in the residential sector.


Page 20

It will be shown later that the buy-to-let

market has declined from some 25% in

2005 to less than 8% currently. This is bad

enough but simultaneously the annual

housing delivery in this segment

(Dwellings > 80 m2 and Flats and

Townhouses) declined from 46 639 to

23 423 units. This followed the sub-prime

crisis, the introduction of the NCA and the

continued reluctance of the Banks to grant

mortgage bonds for first homes and even

more so for buy-to-let or holiday homes.

The earlier graphic shows that from

2007 to 2009 a massive R233 Billion

was taken out of the system with near

disaster impact on the building

industry.

This confirms that the strategy of GPF to

encourage the building of rental stock is

appropriate. The market and pricing

segment is also well chosen.

The Gauteng Partnership Fund's role is to

bridge the gap between government and

the private sector on affordable housing

projects.

• Rental Housing Fund and

Empowerment Property Fund

• Social Housing Fund

• Management of social housing

institutional subsidies

• Strategic partnerships projects (banks and development finance institutions)

• Sustainable Housing Fund (integrated housing developments)

Fundamental to the GPF strategy is the Social Housing Rental and the Entrepreneurial

Social Housing Rental fund.

DEFINITION OF SOCIAL HOUSING

Social housing is defined as:

• A rental or co-operative housing option for low income persons at a level of scale and

built form which requires institutionalised management and which is provided by

accredited social housing institutions or in accredited social housing projects in

designated restructuring zones. (SOCIAL AND RENTAL INTERVENTIONS: SOCIAL

HOUSING POLICY | PART 3 (OF THE NATIONAL HOUSING CODE) | 2009)

Of almost 6 million residential properties on

the Deeds Registry, 3.5 million (58%) are

valued at less than R500,000.

Of about 6886 suburbs on the deeds

registry, about 3500 have an average

property value of less than R500 000.

• Just under half (47%) of affordable market

properties are found in former-black

townships

• Only about 4% of properties in the

affordable market are in Sectional Title

schemes

• So far, in 2010, 80% of all new build has

been in the affordable market; vs. about

35% of all resale

• The Free State is the most affordable

province, with 83% of its properties valued

at less than R500 000 each

• The ABSA house price index (December

2011) estimates that the average nominal

value of a home in the small houses (40m2-

79m2) segment of the market is about

R706,367 (www.alhdc.org.za)


Page 21

SOCIAL HOUSING PROGRAMME

Security of tenure remains one of the fundamental principles of housing policy.

Where other programmes provide freehold tenure to households, there has been an

increasing need for affordable rental units which provide secure tenure to households

which prefer the mobility provided by rental accommodation. The Social Housing Programme

therefore applies only to “restructuring zones” which are identified by municipalities as areas

of economic opportunity and where urban renewal/restructuring impacts can best be

achieved. The Programme also aims at developing affordable rental in areas where bulk

infrastructure (sanitation, water, transport) may be under-utilised, therefore improving urban

efficiency.

The Programme provides for grant funding to establish, capacitate and capitalise social

housing institutions which may develop, hold and administer affordable rental units within

identified restructuring zones. A precondition for receiving capital grants is that social

housing institutions need to be accredited and also access own capital contributions.

IMPORTANT CONSIDERATIONS

A Social Housing Regulatory Authority will deal with the accreditation of Social Housing

Institutions in terms of legislation and regulations.

Social housing projects need to demonstrate their viability in each specific settlement

context, but always with the objective of achieving the goals of integration and restructuring.

Subsidy funding will be provided on a sliding scale based on the number of poor

households accommodated subject to certain conditions.

THE ROLE-PLAYERS AND DECISION-MAKERS

The following institutions each have an important role to play in the implementation of Social

Housing Projects:

• Social Housing Regulatory Authority;

• Municipalities;

• The Provincial Departments;

• The National Department;

• Delivery Agents; and

• National Housing Finance Corporation.

INSTITUTIONAL SUBSIDIES

Security of tenure remains one of the fundamental principles of housing policy.

Where other programmes provide freehold tenure to households, there has been an

increasing need for affordable rental units that provide secure tenure to households,

which prefer the mobility provided by rental accommodation.


Page 22

Owing to a variety of reasons the market has not provided adequate units in the lower end of

the rental market.

As the Social Housing Programme focuses mainly on achieving urban integration and

upgrading and is applicable only in declared restructuring zones, the need remains for a

programme that will provide for affordable rental accommodation in other parts of settlements

(e.g. as part of informal settlement upgrades where such settlements are not well located

with regard to employment opportunities but where certain members of the community may

need rental accommodation).

Hence an Institutional Housing Subsidy Programme has been introduced to provide

capital grants to social housing institutions which construct and manage affordable rental

units. The Programme also provides for the sale of units by the social housing institution after

at least four years have lapsed.

Housing institutions need to meet certain criteria to qualify for the subsidy. These are:

• The institution must have legal status;

• The main object of applying for the subsidy must be the development and holding of

immovable property for occupation;

• The institution must be financially viable;

• Institutions must make a financial contribution in addition to the subsidy; and

• Institutions will normally be required to own immovable property, although longterm leases

may be found acceptable.

The institution must ensure that beneficiaries are granted secure tenure rights.

Institutions who meet the designated criteria may apply to the MEC for an institutional

subsidy in respect of a lease agreement, instalment sale or share-block agreement

scheme. Qualifying beneficiaries then apply to the housing institution to occupy the rental

stock.

Thereafter institutions need to conform to the requirements governing their accreditation and

in doing so are required to submit regular progress reports to the Provincial Department.

THE ROLE- PLAYERS AND DECISION-MAKERS

Housing Institutions apply to the MEC for the subsidy.

The MEC assesses an institution’s application and if the application is acceptable, grants the

subsidy to the institution.

The institution is responsible for the construction/provision of the rental stock and all

maintenance of the said stock and to operate the stock in terms of the conditions of

accreditation.


Page 23

4. CURRENT REALITY

An accurate, insightful view of current reality is as important as a clear vision

4.1 The Dynamics of Building Industry activity

The Building Industry plays an important role in the economy. It is a large Industry, it has critical mass and momentum and a good future.


Page 24

R*Million % m2*1000 %

2 255 1.46% 906 2.31%

13 372 8.67% 2 774 7.07%

4 845 3.14% 996 2.54%

863 0.56% 150 0.38%

7 871 5.11% 1 763 4.49%

20924 13.57% 8404 21.43%

2940 1.91% 1181 3.01%

70 0.05% 28 0.07%

7923 5.14% 3182 8.12%

61064 39.61% 19 384 49.43%

2 352 1.53% 382 0.97%

3 309 2.15% 583 1.49%

3 140 2.04% 785 2.00%

1 269 0.82% 247 0.63%

3 601 2.34% 693 1.77%

12 157 7.89% 2392 6.10%

5 617 3.64% 1105 2.82%

29 506 19.14% 5807 14.81%

60951 39.53% 11995 30.59%

28 117 18.24% 6851 17.47%

4 046 2.62% 986 2.51%

154 177 100.00% 39 215 100.00%

TOTAL NON RESIDENTIAL

Unrecorded Res Adds and Alts

Unrecorded Non Res Adds and Alts

GRAND TOTAL

(Source: BMI-BRSCU)

PUBLIC NON-RESIDENTIAL

General Government

Public corporations

Private Business Enterprises

Offices

Shops

Industrial & warehouse

Other

Additions & Alterations

Public corporations

Private Business Enterprises

TOTAL RESIDENTIAL

PRIVATE NON-RESIDENTIAL

Additions & alterations

PUBLIC RESIDENTIAL

Affordable Housing

General Government

INVESTMENT IN BUILDING: 2011: R MILLION AND M2*1000

PRIVATE RESIDENTIAL

Dwelling-houses < 80 m2

Dwelling-houses > 80 m2

Townhouses & Flats

Other (Incl. hotels & casinos)

Warren Buffett says 'hormones' will save the housing market. But this time he's not saying exactly when. In his annual letter to Berkshire Hathaway shareholders, which was released in February, Buffett says he still believes a real estate recovery is on the horizon. Yet, the Oracle of Omaha admits that on housing his crystal ball has been cloudy. Last year, Buffett said the real estate market would recover in 2011 or early 2012. While home sales have risen recently, it would be a stretch to call the past year a recovery, and Buffett doesn't try. 'I was dead wrong,' he writes. Nonetheless, Buffett says a turnaround for housing is in the works. Buffett's argument mostly rests on demographics and, in part, on sex. He says the housing bust was created by the fact that home builders put up houses faster than there were new families to fill them. Recently, that trend has reversed. 'People may postpone hitching up during uncertain times, but eventually hormones take over,' he writes. 'And while 'doubling-up' may be the initial reaction of some during a recession, living with in-laws can quickly lose its allure.' (Fortune, February 2012)

The following graphic shows the Investment in Building in both m2 and value.

Affordable housing is an important aspect of Government policy. In the above table and graphic it is shown as about R21 Billion. However it is a known fact that the average cost of an affordable house is in the region of R120 000. If this is the case then the R21 Billion could easily be double at more than R40 Billion. This makes Affordable Housing a very important sector.


Page 25

2 255

13 372

4 845

863

7 871

20 924

2 940

70

7 923

61 064

2 352

3 309

3 140

1 269

3 601

12 157

5 617

29 506

60 951

28 117

4 046

0 10 000 20 000 30 000 40 000 50 000 60 000

PRIVATE RESIDENTIAL

Dwelling-houses < 80 m2

Dwelling-houses > 80 m2

Townhouses & Flats

Other (Incl. hotels & casinos)

Additions & alterations

PUBLIC RESIDENTIAL

Affordable Housing

General Government

Public corporations

Private business enterprises

TOTAL RESIDENTIAL

PRIVATE NON-RESIDENTIAL

Offices

Shops

Industrial & warehouse

Other

Additions & Alterations

PUBLIC NON-RESIDENTIAL

General Government

Public Corporations

Private business enterprises

TOTAL NON RESIDENTIAL

Unrecorded Res Add's and Alt's

Unrecorded Non Res Add's and Alt's

INVESTMENT IN BUILDING BY SECTOR AND BY SEGMENT: 2011: R MILLIONS (2011 VALUES)(TOTAL = R154 177)

(Source: SARB, StatsSA, MFA, BMI-BRSCU Workings)

0

1 000

2 000

3 000

4 000

5 000

6 000

7 000

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Nu

mb

er

of

Un

its

BPP & BC Residential Dwellings < 80 m2: 1993-2012 by month: Number of Units (JAN)(Source: StatsSA; BMI-BRSCU: BC Total RSA by Month and Type of Building1993-2008: DW < 80 UNITS)

BC RES DWELLINGS < 80 M2: NUMBER BPP RES DWELLINGS < 80 M2: NUMBER

12 per. Mov. Avg. (BC RES DWELLINGS < 80 M2: NUMBER) 12 per. Mov. Avg. (BPP RES DWELLINGS < 80 M2: NUMBER)

500

700

900

1 100

1 300

1 500

1 700

1 900

2 100

2 300

2 500

2 700

2 900

3 100

3 300

3 500

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Nu

mb

er

of

Un

its

BPP & BC Residential Dwellings > 80 m2: 1993-2012 by month: Number of Units (JAN)(Source: StatsSA; BMI-BRSCU: BC Total RSA by Month and Type of Building1993-2008: DW > 80 UNITS)

BC RES DWELLINGS > 80 M2: NUMBER BC RES DWELLINGS > 80 M2: NUMBER

12 per. Mov. Avg. (BC RES DWELLINGS > 80 M2: NUMBER) 12 per. Mov. Avg. (BC RES DWELLINGS > 80 M2: NUMBER)

4.2 The Dynamics of the formal Residential market

The provision of

Dwellings < 80 m2

as reported by

StatsSA has

declined steadily

since about 2000.

The same trend is

evident for

Dwellings > 80 m2

and for Flats and

Townhouses but

the decline started

in 2007.


Page 26

0

200

400

600

800

1 000

1 200

1 400

1 600

1 800

2 000

2 200

2 400

2 600

2 800

3 000

3 200

3 400

3 600

3 800

4 000

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Nu

mb

er

of

Un

its

BPP & BC Residential Flats and Townhouses: 1993-2012 by month: Number of Units (JAN)(Source: StatsSA; BMI-BRSCU: BC Total RSA by Month and Type of Building1993-2008: F&TH UNITS)

BC FLATS AND TOWNHOUSES: UNITS BPP FLATS AND TOWNHOUSES: UNITS

12 per. Mov. Avg. (BC FLATS AND TOWNHOUSES: UNITS) 12 per. Mov. Avg. (BPP FLATS AND TOWNHOUSES: UNITS)

2010 2011 2012

Dwelling Houses > 80 m2 753 945 796 735 1025 830 1053 1007 897 976 1004 835 578 832 1056 753 901 1068 1053 1050 1094 1084 1100 886 812

Dwelling Houses < 80 m2 1138 1602 1738 1289 1727 1205 1374 1507 1454 1981 2275 1568 652 1761 2330 1786 1391 1463 2057 1795 1648 1432 1607 1573 1470

BC FLATS AND TOWNHOUSES: UNITS 409 649 1097 1076 857 846 1026 989 935 914 1236 931 575 713 1034 656 669 975 603 432 1038 1174 1014 662 603

0

200

400

600

800

1 000

1 200

1 400

1 600

1 800

2 000

2 200

2 400

2 600

2 800

3 000

3 200

3 400

3 600

3 800

4 000

4 200

4 400

4 600

Nu

mb

er

of

Un

its

BC Residential Flats and Townhouses, Dwelling Houses < and > 80 m2: 1993-2012 by month: Number of Units (JAN)

(Source: StatsSA; BMI-BRSCU: BC Total RSA by Month and Type of Building1993-2008: F&TH UNITS)

0

50 000

100 000

150 000

200 000

250 000

300 000

350 000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

NU

MB

ER

OF

UN

ITS

INVESTMENT IN RESIDENTIAL BUILDING: 1993 -2011: ( UNITS)2012-2020: LOWER MIDDLE ROAD SCENARIO (UNITS)

(Source: StatsSA, SARB, MFA, BMI-BRSCU Workings)

Dwelling Houses < 80 m2 Dwelling Houses > 80 m2 Townhouses and Flats DHS Delivery: Affordable Housing

The mix in

numbers of these

housing segments

is shown in the

graphic for 2010

up to January

2012.

The expectation is

that the trend to

2020 under the

Lower Middle

Road Scenario will

remain fairly flat.


Page 27

5 4

80 9

806

43

98

3

14

56

5

21

34

2 26

24

5

48

16

4

37

20

5

19

54

3

1 8

35

3 1

30

3 6

70

3 7

78

4 2

10

2 5

91

2 0

51

2 1

59

0

15 000

30 000

45 000

SH

EL

P 1

SH

EL

P 2

INC

/SH

EC

H

INC

/SH

ES

H

CO

NV

/LIS

H

CO

NV

/LA

SH

ST

D/M

ISH

ST

D/M

AS

H

ST

D/M

US

H

LU

X/L

US

H

1-499 500-799 800-1499

1500-1999

2000-2499

2500-3499

3500-5999

6000-8999

9000-10999

11000-11999

12000-13999

14000-15999

16000-19999

20000-24999

25000-29999

30000-39999

40000+

UN

ITS

HOUSING MARKET PER LSM GROUP: 2011: UNITS(Source: StatsSA, AMPS 2010, BMI-BRSCU Workings)

GAP Market111 682 Units

Affordable Rental Social Housing

(62 152 Units)

Entrepreneurial Rental Social Housing(111 682 units)

4.3 The Dynamics of the Affordable Housing market and the role of GPF

The strategic intent and overarching strategic goal of GPF is to increase and leverage the involvement of private sector funding for affordable housing in Gauteng, but with the underlying objective to expand countrywide. As stated by CEO, Kutoane Kutoane ‘I will be making a proposal to central government for the GPF’s model to extend beyond the province, whether that means we need to transform or create a new entity doesn’t matter’. Gauteng Partnership Fund plays a pivotal role in the provision of affordable housing, acting as a catalyst for investment by matching private-sector funding with public-sector contributions. However, CEO Kutoane Kutoane wants to build more than just houses; he wants to build communities. Of particular interest to GPF is the encouragement of Affordable Rental Social Housing and Entrepreneurial Rental Social Housing. The intent is to facilitate the building of 20 000 rental units in the next 3 years. From the above graphic it can be seen that the potential market for Affordable Rental Social Housing, countrywide is 62 152 for 2011 or about 186 456 in 3 years. The potential market for Entrepreneurial Rental Social Housing is 111 682 for 2011 or 335 046 for 3 years, thus a total of 521 502. Some 40% of this total will be in Gauteng, thus about 208 600. Market National

Market size (3 years)

GPF Strategic Intent (3 years)

GPF share of National Market (3 years)

Gauteng Market Size (3 years)

GPF share of Gauteng Market (3 years)

Affordable Rental Social Housing

186 456 10 000 5,4% 74 582 13,4%

Entrepreneurial Rental Social Housing

335 046 10 000 3,0% 134 018 7,5%

Total 521 502 20 000 3,8% 208 600 9,6% The 20 000 unit intent of GPF would thus represent about 10% market share of the Gauteng market and 3,8% of the national market. GPF have developed specific product offerings, the Rental Housing Fund and the Social Housing Fund for the purpose of participating in the market. The GPF seeks to continually develop products aimed at addressing housing market funding challenges. GPF products are reviewed annually to determine their effectiveness.


Page 28

The Gauteng Partnership fund (GPF) was established by the Gauteng Department of Housing to address funding challenges in the affordable housing sector. The table shows the estimated Residential and Non Residential investment in Sustainable Integrated Developments in 2011. It can be seen that the approximately 250 000 houses built in the year resulted in investment of R159 Billion (land excluded). And . . . created 266 000 jobs in the process. Clearly this is an extremely important sector of the economy. The GPF assists the affordable housing sector by:

• Providing public funding as equity cushion to investors.

• Providing prospective funders with sustainable entry into the social housing financing market by means of various products.

• On a project-by-project basis, GPF will assist the housing companies to procure finance at the most favourable terms in order to promote affordable, quality accommodation that is well managed for the target market.

Rental Housing Fund The Rental Housing Fund was developed for entrepreneurial rental housing institutions that require an equity injection to the project. The GPF equity enhances the debt to equity ratio for projects to enable lenders to finance, on favourable terms. Any company or project (SPV) with a recognised legal form that provides rental or delayed ownership schemes to majority families with household with monthly income less than R15 000 (Adjusted according to CPI) can qualify. The institution must demonstrate to GPF that they have the technical resource capacity to succsesfully complete the project as well as efficiently manage the property thereafter. Types of Projects ■ Inner-city residential refurbishments. ■ Conversion of offices to residential units. ■ Greenfield developments. Social Housing Fund The Social Housing Fund was developed for social housing institutions that require an equity injection to the project. The GPF equity enhances the debt to equity ratio for projects to enable lenders to finance, on favourable terms. Who Qualifies Any not for profit entity or project (SPV) with a recognised legal form that provides rental or delayed ownership schemes to majority families with a household monthly income less than R15 000 (adjusted according to CPI) The institution must demonstrate to GPF that they have the technical resource capacity to successfully complete the project as well as efficiently manage the property thereafter. Types of Projects ■ Inner-city refurbishments or predominantly residential buildings ■ Conversion of offices to residential units ■ Greenfield developments for social housing


Page 29

Zo

nin

gT

yp

e

Den

sit

y (

Gro

ss)

Un

its

m2/U

nit

To

tal m

2R

/m2

R/U

nit

Sta

nd

To

tal R

/Un

it

R M

illio

n*

%%

Giv

eaw

ay R

DP

(H

HI

< R

1500)

Resi

dentia

l 2R

ow

Housi

ng

90 U

nits

/Ha

62 0

37

46

2 8

53 7

03

2 4

90

114 5

26

11 4

53

125 9

79

7 1

05

5.4

0%

4.4

7%

Aff

ord

able

Renta

l Socia

l H

ousin

g (

HH

I R

1500 -

R3500)

Resi

dentia

l 3W

alk

-ups

125 U

nits/H

a41 3

58

46

1 9

02 4

68

2 4

90

114 5

26

11 4

53

125 9

79

4 7

37

3.6

0%

2.9

8%

Entr

epre

neuri

al R

enta

l S

ocia

l H

ousi

ng (

HH

I R

3500 -

R10000)

Resi

dentia

l 11 H

ouse/S

tand

200 m

2-4

50 m

282 7

16

68

5 6

24 6

89

4 8

21

327 8

41

32 7

84

360 6

25

27 1

18

20.6

0%

17.0

8%

Entr

epre

neuri

al R

enta

l S

ocia

l H

ousi

ng (

HH

I R

10000 -

R15000)

Resi

dentia

l 11 H

ouse

/Sta

nd +

F&

TH

201 m

2-4

50 m

220 6

79

113

2 3

36 7

27

4 8

63

549 4

79

54 9

48

604 4

27

11 3

63

8.6

3%

7.1

5%

Su

b-T

ota

l206 7

90

62

12 7

17 5

88

3 9

57

243 3

47

243 3

47

50 3

22

38.2

3%

31.6

9%

Mid

dle

Bonded o

r R

enta

l (H

HI

> R

15000)

Resi

dentia

l 1D

eta

tched

190 m

219 5

43

113

2 2

08 3

42

4 8

21

544 7

95

54 4

80

599 2

75

10 6

47

8.0

9%

6.7

0%

Mid

dle

to U

pper

Bonded o

r R

enta

l (H

HI

> R

15000)

Resi

dentia

l 1D

eta

tched

1 p

er

350 m

211 2

50

180

2 0

25 0

45

4 8

21

867 8

15

86 7

82

954 5

97

9 7

63

7.4

2%

6.1

5%

Mid

dle

to U

pper

Bonded o

r R

enta

l (H

HI

> R

15000)

Resi

dentia

l 2F

lats

& T

ow

nhouses

1 p

er

200 m

212 1

73

180

2 1

91 1

01

4 8

21

867 8

15

86 7

82

954 5

97

10 5

64

8.0

3%

6.6

5%

To

tal M

idd

le t

o U

pp

er

23 4

23

180

4 2

16 1

45

7 3

46

1 3

22 3

61

132 2

36

1 3

22 3

61

30 9

74

23.5

3%

19.5

0%

To

tal A

ffo

rdab

le H

ou

sin

g226 3

33

14 9

25 9

30

359 1

86

81 2

96

61.7

7%

51.1

9%

To

tal H

ou

sin

g249 7

56

19 1

42 0

75

526 9

84

131 6

17

100.0

0%

82.8

8%

Zo

nin

gU

nit

sm

2/U

nit

To

tal m

2R

/m2

R/U

nit

Sta

nd

T

ota

lR

Mill

ion

*%

%

Off

ices

& B

anki

ng

Busi

ness

376

5 0

00

1 8

78 2

20

6 1

57

30 7

85 7

10

3 0

78 5

71

33 8

64 2

81

11 5

64

42.5

3%

7.2

8%

Industr

ial a

nd W

are

housi

ng

Industr

ial

367

5 0

00

1 8

32 8

24

4 0

39

20 1

95 0

00

2 0

19 5

00

22 2

14 5

00

7 4

03

27.2

2%

4.6

6%

Shoppin

g &

Com

merc

ial

Busi

ness

556

5 0

00

2 7

78 5

34

2 9

60

14 8

00 0

00

1 4

80 0

00

16 2

80 0

00

8 2

24

30.2

5%

5.1

8%

To

tal N

on

Resid

en

tial

1 2

98

5 0

00

6 4

89 5

79

4 1

90

20 9

50 2

87

6 5

78 0

71

72 3

58 7

81

27 1

92

100.0

0%

17.1

2%

Gra

nd

To

tal

10 7

05 7

24

158 8

09

100.0

0%

266 8

38

136 5

97

0.6

035

603520

(Sourc

e:

BM

I-B

RS

CU

Est

imate

)

Susta

inable

Inte

gra

ted H

ousi

ng

Settle

ments

Off

ices &

Bankin

g

Indust

rial and W

are

housi

ng

Shoppin

g &

Com

merc

ial

To

tal N

on

Resid

en

tial

Gra

nd

To

tal

ES

TIM

AT

ED

RE

SID

EN

TIA

L IN

VE

ST

ME

NT

IN

SU

ST

AIN

AB

LE

IN

TE

GR

AT

ED

DE

VE

LO

PM

EN

TS

: 2011

Resid

en

tial

Inte

gra

ted H

ousi

ng

Settle

ments

ES

TIM

AT

ED

NO

N R

ES

IDE

NT

IAL

IN

VE

ST

ME

NT

IN

SU

ST

AIN

AB

LE

IN

TE

GR

AT

ED

DE

VE

LO

PM

EN

TS

No

n R

esid

en

tial (m

2)

Typ

e

Em

plo

ym

ent cre

ate

d p

er

annum

for

one A

fford

able

House

Em

plo

ym

ent cre

ate

d p

er

annum

for

1000000 A

fford

able

House

s

* Land e

xclu

ded

Em

plo

ym

ent cre

ate

d p

er

annum

for

Resid

ential A

H

and N

on R

esid

ential I

nte

gra

ted D

eve

lopm

ent

Em

plo

ym

ent cre

ate

d p

er

annum

for

Aff

ord

able

Housi

ng M

ark

et

0

5 000

10 000

15 000

20 000

25 000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

R M

ILL

ION

S (

CU

RR

EN

T A

ND

CO

NS

TA

NT

2011 V

AL

UE

)

INVESTMENT IN RESIDENTIAL BUILDING: 2002 -2011: R MILLIONS (CURRENT VALUE)2012-2020: LOWER MIDDLE ROAD SCENARIO (CONSTANT 2011 VALUE)

(Source: StatsSA, SARB, MFA, BMI-BRSCU Workings)

Dwelling Houses < 80 m2 Dwelling Houses > 80 m2 Townhouses and Flats Affordable Housing Investment

It is estimated that the 250 000 houses built in 2011 resulted in investment of R130 Billion (land excluded). And . . . created 266 000 jobs in the process.

The Investment in Affordable Housing exceeds that of Dwellings > 80 m2, Dwellings < 80 m2 and Flats and Townhouses.


Page 30

0

50 000

100 000

150 000

200 000

250 000

300 000

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

UN

ITS

AFFORDABLE HOUSING DELIVERY: 2002-2011 (UNITS)LOWER MIDDLE ROAD SOYUZ SCENARIO: 2012-2020

(Source: StatsSA and BMI-BRSCU Workings)

Houses < 80 m2 DHS Delivery

0

200 000

400 000

600 000

800 000

1 000 000

1 200 000

1 400 000

1 600 000

1 800 000

2 000 000

2 200 000

2 400 000

2 600 000

2 800 000

3 000 000

3 200 000

0

50 000

100 000

150 000

200 000

250 000

300 000

350 000

400 000

450 000

500 000

550 000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

AN

NU

AL

HO

US

ING

BA

KL

OG

(U

NIT

S)

AN

NU

AL

HO

US

ING

DE

LIV

ER

Y (

UN

ITS

)

AFFORDABLE HOUSING DELIVERY AND BACKLOG: 2002-2011LOWER MIDDLE ROAD SOYUZ AND HIGH ROAD COLUMBUS SCENARIO: 2012-2020

(Source: StatsSA and BMI-BRSCU Workings)

DOH Delivery: Lower Middle Road Soyuz Scenario DOH Delivery: High Road Columbus Scenario

Annual Housing Backlog under Columbus Scenario Annual Housing Backlog under Soyuz Scenario

Under the Lower Middle Road Scenario the annual housing delivery will remain fairly flat and the current housing backlog of some 2,3 million units will increase to some 3 million by 2020. The flat future applies to both DHS and Private Sector delivery (dwellings < 80 m2).


Page 31

0

200 000

400 000

600 000

800 000

1 000 000

1 200 000

1 400 000

1 600 000

1 800 000

2 000 000

2 200 000

2 400 000

2 600 000

2 800 000

3 000 000

3 200 000

0

50 000

100 000

150 000

200 000

250 000

300 000

350 000

400 000

450 000

500 000

550 000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

AN

NU

AL

HO

US

ING

BA

KL

OG

(U

NIT

S)

AN

NU

AL

HO

US

ING

DE

LIV

ER

Y (

UN

ITS

)AFFORDABLE HOUSING DELIVERY AND BACKLOG: 2002-2011

LOWER MIDDLE ROAD SOYUZ AND HIGH ROAD COLUMBUS SCENARIO: 2012-2020(Source: StatsSA and BMI-BRSCU Workings)

DOH Delivery: Lower Middle Road Soyuz Scenario DOH Delivery: High Road Columbus Scenario

Annual Housing Backlog under Columbus Scenario Annual Housing Backlog under Soyuz Scenario

Under the High Road Scenario 3,43 Million houses built

in next 9 years and

Backlog reduced to I,4 million by 2020.

The target must be the eradication of all

slums, or informal settlements. For progress to be made, some 3,43 million new units

must be delivered from 2012-2020.

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Subsidies granted: Lower Middle Road Soyuz Scenario 7.86 7.79 7.50 7.25 9.16 9.67 10.67 13.22 18.74 20.92 21.25 20.88 19.75 19.37 19.66 20.05 20.55 21.17 21.80

Subsidies granted: High Road Columbus Scenario 7.856 7.794 7.496 7.255 9.165 9.669 10.67 13.22 18.74 20.92 27.76 31.75 36.19 41.16 46.84 50.12 53.64 57.2 59.78

0

5

10

15

20

25

30

35

40

45

50

55

60

R B

ILL

ION

S (

CU

RR

EN

T A

ND

CO

NS

TA

NT

201

1 V

AL

UE

S)

SUBSIDIES GRANTED: 2002-2010 (CURRENT VALUES)LOWER MIDDLE ROAD SOYUZ AND HIGH ROAD COLUMBUS SCENARIOS: 2011-2020 (R BILLIONS)

(CONSTANT 2011 VALUES)(Source: DHS and BMI-BRSCU Workings)

Under the High Road Scenario, annual housing delivery must steadily increase to reach some 425 000 units by 2020. Under this scenario the housing delivery from 2012 to 2020 will be about 3,2 million units and the backlog will reduce to just more than 1,4 million units. If social problems are to be avoided it seems that the high road strategy is advisable. Of course Subsidies and the trend toward rental housing is part of the solution.

Under the Lower Middle Road Scenario the annual subsidy will remain at about R22 Billion

per annum (at 2011 value). Under the High Road Scenario it would have to increase to about

R60 Billion by 2020.


Page 32

DHS Delivery,

185225, 82%

Houses < 80 m2,

18858, 8%

Houses > 80 m2,

10856, 5%Flats and Townhouses,

12173, 5%

THE TOTAL RESIDENTIAL MARKET: 2011 (UNITS)

(Total = 249 756)

The Taxpayer Contribution would amount to R297 (lower middle road) to R517 Billion (high

road) OVER NEXT 9 YEARS IN THE PROVISION OF OVER 3 MILLION Affordable Housing

Units and creating employment in the process of Growth through Redistribution.

The credit belongs to both Government, in providing the leadership and vision, and the

Taxpayer in providing the finance.

The table overleaf shows that if the 2,3 million houses can be built in the next 9 years

under the Lower Middle Road Scenario this will result in investment of R1,9 Trillion

(land excluded).

And 428 000 sustainable jobs would be created in the process.

If the 4 million

houses can be

built in the next

9 years under

the High Road

Scenario this

will result in

investment of

R2,08 Trillion

(land excluded).

And 466 000

sustainable jobs

would be

created in the

process.

As shown earlier, the total Residential market in 2011 was 249 756 units, of which 82% was

accounted for by DHS. Dwellings < 80 m2 accounted for 8%, Dwellings > 80 m2 5% and

Flats and Townhouses 5%.

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Cum Subsidies granted: Lower Middle Road Soyuz Scenario 7.86 15.65 23.15 30.40 39.57 49.23 59.91 73.13 91.87 112.8 134.0 154.9 174.6 194.0 213.7 233.7 254.3 275.4 297.2

Cum Subsidies granted: High Road Columbus Scenario 7.86 15.65 23.15 30.40 39.57 49.23 59.91 73.13 91.87 112.8 140.5 172.3 208.4 249.6 296.5 346.6 400.2 457.4 517.2

0

40

80

120

160

200

240

280

320

360

400

440

480

520

R B

ILL

ION

S (

CU

RR

EN

T A

ND

CO

NS

TA

NT

2

01

1 V

AL

UE

S)

CUM SUBSIDIES GRANTED: 2002-2011 (R Billions) (Current Values)2012-2020: HIGH & LOWER MIDDLE ROAD SCENARIOS (Current 2011 Values)

(Source: DHS and BMI-BRSCU Workings)


Page 33

Zo

nin

gT

yp

e

Den

sit

y )

Gro

ss)

Un

its

m2/U

nit

To

tal m

2R

/m2

R/U

nit

Sta

nd

To

tal R

/Un

it

R M

illio

n*

%%

Giv

eaw

ay R

DP

(H

HI

< R

1500)

Resi

dentia

l 2R

ow

Housi

ng

90 U

nits

/Ha

1 0

30 2

96

46

47 3

93 6

20

2 4

90

114 5

26

11 4

53

125 9

79

117 9

96

5.6

7%

4.7

2%

Aff

ord

able

Renta

l Socia

l Housi

ng (

HH

I R

1500 -

R3500)

Resi

dentia

l 3W

alk

-ups

125 U

nits

/Ha

686 8

64

46

31 5

95 7

47

2 4

90

114 5

26

11 4

53

125 9

79

78 6

64

3.7

8%

3.1

5%

Entr

epre

neuri

al R

enta

l Socia

l Housi

ng (

HH

I R

3500 -

R10000)

Resi

dentia

l 11 H

ouse

/Sta

nd

200 m

2-4

50 m

21 3

73 7

28

68

93 4

13 5

12

4 8

21

327 8

41

32 7

84

360 6

25

450 3

65

21.6

5%

18.0

1%

Entr

epre

neuri

al R

enta

l Socia

l Housi

ng (

HH

I R

10000 -

R15000)

Resi

dentia

l 11 H

ouse

/Sta

nd +

F&

TH

201 m

2-4

50 m

2343 4

32

113

38 8

07 8

19

4 8

63

549 4

79

54 9

48

604 4

27

188 7

09

9.0

7%

7.5

5%

Su

b-T

ota

lS

ub

-To

tal

3 4

34 3

20

62

211 2

10 6

99

3 9

57

243 3

47

243 3

47

835 7

33

40.1

7%

33.4

2%

Mid

dle

Bonded o

r R

enta

l (H

HI

> R

15000)

Resi

dentia

l 1D

eta

tched

190 m

2246 3

79

113

27 8

40 7

76

4 8

21

544 7

95

54 4

80

599 2

75

134 2

26

6.4

5%

5.3

7%

Mid

dle

to U

pper

Bonded o

r R

enta

l (H

HI

> R

15000)

Resi

dentia

l 1D

eta

tched

1 p

er

350 m

2141 8

33

180

25 5

29 9

29

4 8

21

867 8

15

86 7

82

954 5

97

123 0

85

5.9

2%

4.9

2%

Mid

dle

to U

pper

Bonded o

r R

enta

l (H

HI

> R

15000)

Resi

dentia

l 2F

lats

& T

ow

nhouse

s1 p

er

200 m

2174 6

72

180

31 4

41 0

48

4 8

21

867 8

15

86 7

82

954 5

97

151 5

83

7.2

9%

6.0

6%

To

tal M

idd

le t

o U

pp

er

To

tal M

idd

le t

o U

pp

er

316 5

05

180

56 9

70 9

77

7 1

77

1 2

91 9

02

129 1

90

1 2

91 9

02

408 8

94

19.6

5%

16.3

5%

To

tal A

ffo

rdab

le H

ou

sin

gT

ota

l A

ffo

rdab

le H

ou

sin

g3 6

80 6

99

239 0

51 4

75

338 1

50

1 2

44 6

27

59.8

3%

49.7

7%

To

tal H

ou

sin

gT

ota

l H

ou

sin

g3 9

97 2

04

296 0

22 4

51

520 4

54

2 0

80 3

60

100.0

0%

83.1

9%

Zo

nin

gU

nit

sm

2/U

nit

To

tal m

2R

/m2

R/U

nit

Sta

nd

T

ota

lR

Mill

ion

*%

Off

ices

& B

anki

ng

Busi

ness

5 8

09

5 0

00

29 0

45 7

20

6 1

57

30 7

85 7

10

3 0

78 5

71

33 8

64 2

81

178 8

39

42.5

3%

7.1

5%

Indust

rial a

nd W

are

housi

ng

Indust

rial

5 6

69

5 0

00

28 3

43 6

94

4 0

39

20 1

95 0

00

2 0

19 5

00

22 2

14 5

00

114 4

80

27.2

2%

4.5

8%

Shoppin

g &

Com

merc

ial

Busi

ness

8 5

94

5 0

00

42 9

68 6

19

2 9

60

14 8

00 0

00

1 4

80 0

00

16 2

80 0

00

127 1

87

30.2

5%

5.0

9%

To

tal N

on

Resid

en

tial

20 0

72

5 0

00

100 3

58 0

34

4 1

90

20 9

50 2

87

6 5

78 0

71

72 3

58 7

81

420 5

06

100.0

0%

16.8

1%

Gra

nd

To

tal

157 3

29 0

11

2 5

00 8

66

100.0

0%

466 8

97

232 3

64

0.0

631

63131

ES

TIM

AT

ED

RE

SID

EN

TIA

L IN

VE

ST

ME

NT

IN

SU

ST

AIN

AB

LE

IN

TE

GR

AT

ED

DE

VE

LO

PM

EN

TS

: 2012-2

020:

HIG

H R

OA

D C

OL

UM

BU

S S

CE

NA

RIO

Typ

e

Sust

ain

able

Inte

gra

ted H

ousi

ng

Settl

em

ents

ES

TIM

AT

ED

NO

N R

ES

IDE

NT

IAL

IN

VE

ST

ME

NT

IN

SU

ST

AIN

AB

LE

IN

TE

GR

AT

ED

DE

VE

LO

PM

EN

TS

Resid

en

tial

(Sourc

e:

BM

I-B

RS

CU

Est

imate

)

No

n R

esid

en

tial (m

2)

* Land e

xclu

ded

Em

plo

ym

ent cre

ate

d p

er

annum

for

Resi

dentia

l AH

and N

on R

esi

dentia

l Inte

gra

ted D

eve

lopm

ent

Em

plo

ym

ent cre

ate

d p

er

annum

for

Aff

ord

able

Housi

ng M

ark

et

Em

plo

ym

ent cre

ate

d p

er

annum

for

one A

fford

able

House

Em

plo

ym

ent cre

ate

d p

er

annum

for

1000000 A

fford

able

House

s

Off

ices

& B

anki

ng

Indust

rial a

nd W

are

housi

ng

Shoppin

g &

Com

merc

ial

To

tal N

on

Resid

en

tial

Gra

nd

To

tal

Sust

ain

able

Inte

gra

ted H

ousi

ng

Settl

em

ents

Zo

nin

gT

yp

e

Den

sit

y )

Gro

ss)

Un

its

m2/U

nit

To

tal m

2R

/m2

R/U

nit

Sta

nd

To

tal R

/Un

it

R M

illio

n*

%%

Giv

eaw

ay R

DP

(H

HI

< R

1500)

Resi

dentia

l 2R

ow

Housi

ng

90 U

nits

/Ha

546 9

67

46

25 1

60 4

72

2 4

90

114 5

26

11 4

53

125 9

79

62 6

42

3.2

8%

2.7

4%

Aff

ord

able

Renta

l Socia

l Housi

ng (

HH

I R

1500 -

R3500)

Resi

dentia

l 3W

alk

-ups

125 U

nits

/Ha

686 8

64

46

31 5

95 7

47

2 4

90

114 5

26

11 4

53

125 9

79

78 6

64

4.1

1%

3.4

4%

Entr

epre

neuri

al R

enta

l Socia

l Housi

ng (

HH

I R

3500 -

R10000)

Resi

dentia

l 11 H

ouse

/Sta

nd

200 m

2-4

50 m

21 3

73 7

28

68

93 4

13 5

12

4 8

21

327 8

41

32 7

84

360 6

25

450 3

65

23.5

5%

19.7

2%

Entr

epre

neuri

al R

enta

l Socia

l Housi

ng (

HH

I R

10000 -

R15000)

Resi

dentia

l 11 H

ouse

/Sta

nd +

F&

TH

201 m

2-4

50 m

2343 4

32

113

38 8

07 8

19

4 8

63

549 4

79

54 9

48

604 4

27

188 7

09

9.8

7%

8.2

6%

Su

b-T

ota

l1 8

23 2

23

104

188 9

77 5

51

4 1

29

428 0

22

428 0

22

780 3

79

40.8

1%

34.1

6%

Mid

dle

Bonded o

r R

enta

l (H

HI

> R

15000)

Resi

dentia

l 1D

eta

tched

190 m

2213 6

30

113

24 1

40 1

96

4 8

21

544 7

95

54 4

80

599 2

75

116 3

85

6.0

9%

5.0

9%

Mid

dle

to U

pper

Bonded o

r R

enta

l (H

HI

> R

15000)

Resi

dentia

l 1D

eta

tched

1 p

er

350 m

2113 5

62

180

20 4

41 2

39

4 8

21

867 8

15

86 7

82

954 5

97

98 5

51

5.1

5%

4.3

1%

Mid

dle

to U

pper

Bonded o

r R

enta

l (H

HI

> R

15000)

Resi

dentia

l 2F

lats

& T

ow

nhouse

s1 p

er

200 m

2157 4

03

180

28 3

32 5

28

4 8

21

867 8

15

86 7

82

954 5

97

136 5

97

7.1

4%

5.9

8%

To

tal M

idd

le t

o U

pp

er

270 9

65

180

48 7

73 7

67

7 2

07

1 2

97 3

33

129 7

33

1 2

97 3

33

351 5

32

18.3

8%

15.3

9%

To

tal A

ffo

rdab

le H

ou

sin

g2 0

36 8

53

213 1

17 7

47

555 7

16

1 1

31 9

12

59.1

9%

49.5

5%

To

tal H

ou

sin

g2 3

07 8

18

261 8

91 5

14

828 6

14

1 9

12 2

91

100.0

0%

83.7

1%

Zo

nin

gU

nit

sm

2/U

nit

To

tal m

2R

/m2

R/U

nit

Sta

nd

T

ota

lR

Mill

ion

*%

%

Off

ices

& B

anki

ng

Busi

ness

5 1

39

5 0

00

25 6

96 7

93

6 1

57

30 7

85 7

10

3 0

78 5

71

33 8

64 2

81

158 2

19

42.5

3%

6.9

3%

Indust

rial a

nd W

are

housi

ng

Indust

rial

5 0

15

5 0

00

25 0

75 7

10

4 0

39

20 1

95 0

00

2 0

19 5

00

22 2

14 5

00

101 2

81

27.2

2%

4.4

3%

Shoppin

g &

Com

merc

ial

Busi

ness

7 6

03

5 0

00

38 0

14 4

03

2 9

60

14 8

00 0

00

1 4

80 0

00

16 2

80 0

00

112 5

23

30.2

5%

4.9

3%

To

tal N

on

Resid

en

tial

17 7

57

5 0

00

88 7

86 9

06

4 1

90

20 9

50 2

87

6 5

78 0

71

72 3

58 7

81

372 0

22

100.0

0%

16.2

9%

Gra

nd

To

tal

137 5

60 6

73

2 2

84 3

13

100.0

0%

426 4

68

211 3

21

0.1

037

103749

Em

plo

ym

ent cre

ate

d p

er

annum

for

Resi

dentia

l AH

and N

on R

esi

dentia

l Inte

gra

ted D

eve

lopm

ent

Em

plo

ym

ent cre

ate

d p

er

annum

for

Aff

ord

able

Housi

ng M

ark

et

Em

plo

ym

ent cre

ate

d p

er

annum

for

1000000 A

fford

able

House

s

Em

plo

ym

en

t cre

ate

d p

er

an

nu

m f

or

on

e A

ffo

rdab

le H

ou

se

* Land e

xclu

ded

No

n R

esid

en

tial (m

2)

ES

TIM

AT

ED

RE

SID

EN

TIA

L IN

VE

ST

ME

NT

IN

SU

ST

AIN

AB

LE

IN

TE

GR

AT

ED

DE

VE

LO

PM

EN

TS

: 2012-2

020:

LO

WE

R M

IDD

LE

RO

AD

SO

YU

Z S

CE

NA

RIO

Resid

en

tial

(Sourc

e:

BM

I-B

RS

CU

Est

imate

)

Inte

gra

ted H

ousi

ng

Sust

ain

able

Inte

gra

ted H

ousi

ng

Settl

em

ents

Typ

e

Off

ices

& B

anki

ng

Indust

rial a

nd W

are

housi

ng

Shoppin

g &

Com

merc

ial

To

tal N

on

Resid

en

tial

Gra

nd

To

tal

ES

TIM

AT

ED

NO

N R

ES

IDE

NT

IAL

IN

VE

ST

ME

NT

IN

SU

ST

AIN

AB

LE

IN

TE

GR

AT

ED

DE

VE

LO

PM

EN

TS


Page 34

0

500

1 000

1 500

2 000

2 500

3 000

3 500

4 000

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

R M

illi

on

s (

Cu

rren

t V

alu

e)

Gross new mortgage loans and re-advances for construction of new buildings vs Residential BC: By Month: Jan 1993- Dec 2011

(Source: SARB, BMI-BRSCU Workings)

Gross new mortgage loans and re-advances for construction of buildings

Residential BC

12 per. Mov. Avg. (Gross new mortgage loans and re-advances for construction of buildings )

12 per. Mov. Avg. (Residential BC)

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Mortgages Advanced for Construction of Buildings 10 879 13 391 14 891 15 897 27 565 32 446 30 941 28 574 30 076 17 064 13 123 15 565

Y/Y Percentage Change 91.73% 23.09% 11.20% 6.76% 73.40% 17.71% -4.64% -7.65% 5.26% -43.26% -23.10% 18.61%

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

0

5 000

10 000

15 000

20 000

25 000

30 000

35 000Y

/Y P

erc

en

tag

e C

han

ge

R M

illio

ns (

Cu

rren

t V

alu

es)

Mortgages Advanced for Construction of Buildings: 2000-2011(Source: SARB; BMI-BRSCU Workings)

5. THE DYNAMICS OF THE RESIDENTIAL PROPERTY MARKET

5.1

The Dynamics of the Mortgage Bond Market

There is a direct relationship between Mortgage Advances for the construction of new

buildings and Buildings Completed. Since 2005 the Mortgage advances have halved and this

has of course had an adverse impact on Buildings Completed.

The outlook for Mortgage Advances is also flat and it is unlikely that the 2007 level will be

reached again in a decade.


Page 35

-70%-60%-50%-40%-30%-20%-10%0%10%20%30%40%50%60%70%80%90%100%110%120%130%

Gold

boom

SA

SO

L II

SA

SO

L III

Au

ste

rity

packa

ge

Ru

bic

on

sp

ee

ch

De

bt

sta

ndstill

Eco

no

mic

reco

very

Ma

nd

ela

's r

ele

ase

De

mocra

tic E

lectio

n

Tra

nsitio

n t

o D

em

ocra

cy

Cu

rre

ncy c

olla

pse

Worl

d T

rad

e C

entr

e

BN

G H

ou

sin

g P

rog

ram

me

Su

b P

rim

e C

risis

(N

CA

)

0

5 000

10 000

15 000

20 000

25 000

30 000

35 000

19

79

19

80

19

81

19

82

19

83

19

84

19

85

19

86

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20

Y/Y

Perc

en

ata

ge

Ch

an

ge

Defining Events

R M

illio

ns (

Cu

rre

nt

Va

lue 1

979-2

011

; C

on

sta

nt

valu

e 2

012

-202

0)

Mortgage Loans on Construction of Buildings: 1979-2010Lower Middle Road Scenario: 2011-2020 (Source: SARB, BMI-BRSCU Workings)

Strategic Forum Lower Middle Road Scenario

IndicatorMarch

2012

March

2011

Change yr on yr

(March 12 vs Mar 11)

February

2012

Change month

on month

(March 12 to Jan 12)

Avg purchase price 874,228 860,492 1,6% 868,174 0,7%

Avg purchase price

of first time buyer629,789 623,179 1,1% 663,092 -5,0%

Avg approved bond size 730,904 729,876 0,1% 738,835 -1,1%

Avg deposit (as % of

purchase price)

16.4%

(R143,324)

15.2%

(R130,616)7,9%

14.9%

(R129,339)10,1%

Avg age of applicant 37 37 No change 37 No change

Avg initial decline ratio

(first bank decline)47.0% 44.7% 2.3% 48,2% -1,2%

Ratio of applications declined

by one lender but approved

by another

24.3% 22.7% 1,6% 22,8% 1,5%

Effective approval ratio 64.4% 65.5% -1,1% 62,8% 1,6%

HOUSE PRICE GROWTH MARCH 2012(Source: oobarometer, March 2012)

(Source: www.ooba.co.za)

According to the latest statistics released by ooba - South Africa's leading bond originator - property prices showed positive year-on-year growth of 1.6% in March, as well as positive month-on-month growth of 0.7%, making this the fifth consecutive month ooba has recorded an increase in residential property prices. The March oobarometer price index reveals that the average house price rose to R874 228 from R860 492 a year earlier.


Page 36

13.7%

4.0%

72.4%

31.5%

32.5%

67.2%

48.7%

13.5%

80.1%

76.1%

59.5%

67.9%

0.0%

20.3%

0% 20% 40% 60% 80% 100%

Dwelling/House or brick structure on a separate stand or yar

Traditional dwelling/Hut/Structure made of traditional mater

Flat or apartment in a block of flats

Town/Cluster/Semi-detached house (Simplex, Duplex or Triplex

Unit in retirement village

Dwelling/House/Flat/room in backyard

Informal dwelling/Shack in backyard

Informal dwelling/Shack not in backyard, e.g. in an informal

Room/Flatlet

Caravan/Tent

Other

Unspecified

Not applicable

Total

Typ

e o

f M

ain

Dw

ell

ing

Ho

us

eh

old

Oc

cu

pie

s

Total Rent Paid past month by Type of Main Dwelling occupied(Source: General Household Survey: 2008; BMI-BRSCU Workings)

INTERPRETATION

* 20,3% of Households are Renters;

* 80,1% of Rooms/Flatlets are rented;

* 76,1% of Caravans/Tents are rented;

* 72,4% of Flats or Apartments are rented.

The average purchase price amongst first time buyers continues to show a year-on-year increase of 1.1% to R629 789 from R623 179 recorded in March 2011. According to Saul Geffen, CEO of ooba, the value of home loan approvals for March was up 49% year-on-year. This is the company's best performance since April 2008, 4 years ago. The average approved bond size showed a nominal increase of 0.1% to R730 904 from R729 876 a year ago, while the average deposit increased by 7.9% to R143 324 from R130 616 in March 2011. The average deposit is now equivalent to 16.4% of the purchase price. The percentage of First Time Buyers dropped in March to 47.7% of ooba's applications received, which is the lowest level it has been since October 2010. Geffen says that this may be attributed to an increased proportion of existing homebuyers who are entering the market as indicated by the recent significant increase in volume of transactions, and supported by more positive sentiment generally. The initial bank decline ratio increased by 2.3% year-on-year to 47% but decreased 1.2% month-on-month in March. The ratio of applicants declined by one lender but approved by another increased 1.6% year-on-year to 24.3%. Geffen explains the month on month improvement in the effective approval rate can be attributed to certain banks easing their lending criteria towards the end of February. The effective approval ratio showed a year-on-year decrease of 1.1% to 64.4% and a month-on-month increase of 1.6%. (www.ooba.co.za)

5.2 The dynamics of the Rental Market

Indications are . . . that the demand for rental housing will increase significantly. In 2001 approximately one million households were renting in metropolitan areas in South Africa, out of a total of 1.8 million households who were renting nationally. This figure is expected to rise in metropolitan areas to 1.5 million in 2006 and 2.2 million in 2011. Indications are that for the income group R19,201 - R38,400 per annum (R1,600 – R3,200 per month), the total formal renting requirement between 2006 and 2011 will increase by an average of approximately 7% per annum on a metropolitan basis, with higher increases in some areas such as Johannesburg. (The National Housing Code: Volume 6: Part 3, Social Housing Policy: 31)


Page 37

64.9%

10.5%

4.2%

1.4%

0.2%

3.2%

5.3%

8.1%

1.1%

0.1%

0.8%

0.2%

0.0%

0% 10% 20% 30% 40% 50% 60% 70%

Dwelling/House or brick structure on a separate stand or yar

Traditional dwelling/Hut/Structure made of traditional mater

Flat or apartment in a block of flats

Town/Cluster/Semi-detached house (Simplex, Duplex or Triplex

Unit in retirement village

Dwelling/House/Flat/room in backyard

Informal dwelling/Shack in backyard

Informal dwelling/Shack not in backyard, e.g. in an informal

Room/Flatlet

Caravan/Tent

Other

Unspecified

Not applicable

Total Rent paid past month by type of main Dwelling occupied(Source: General Household Survey: 2008; BMI-BRSCU Workings)

INTERPRETATION

* 64,9% of all rentals are for Dwelling

Houses;

* Only 4,2% of rentals paid last month

is for Flat or Apartment.

The General Household Survey conducted by StatsSA is a stratified, random sample of approximately 30 000 households interviewed during consecutive years using face-to-face interviews and data collection is spread over three months. It provides a good indication of the dynamics of the housing market.

About 20,3% of Households are renters. The most common form of rental accommodation is a Room/Flatlet. A Flat or Apartment in a Block of Flats is the most commonly used accommodation amongst the formal units available, followed by Town/Cluster/Semi-detached house (Simplex, Duplex or Triplex). According to StatsSA there has been continued growth since 2002 in the ownership of dwellings, from 53,1% in 2002 to 58,1% in 2010. Concurrently the percentage of the households who were renting decreased from 22,5% in 2007 to 20,6% in 2010 while the percentage of dwellings that were partially owned declined jaggedly to 10,9%. The rapid economic growth that took place between 2002 and 2007 probably fueled increases in full ownership. An increase of 2,1% in the ownership of dwellings was most likely to be caused by the recovery from recession which impacted severely on households’ liquidity during most of 2009. There has been an inverse relationship between fully owned dwellings and renting since 2002. This was expected – as ownership increases, renting decreases. The percentage of households whose tenure status was classified as ‘other’ decreased slightly from 11,8% in 2002 to 10,4% in 2010. (General Household Survey, 2010: StatsSA, P0318: 21)

Nearly 65% of total rent paid is a Dwelling house or brick structure on a separate stand and only 4,2% for a Flat or Apartment in a block of Flats. The GHS 2010 included a number of questions aimed at establishing the extent to which subsidized housing provided by the state is used, the quality of these dwellings as well as the use of waiting lists. At the time of the survey, 18,9% of South African households were living in an ‘RDP’ or state-subsidised dwelling while a further 13% had at least one household member on a demand database/waiting list for state-subsidised housing.


Page 38

11.1%

13.1%

2.2%

6.3%

18.6%

7.4%

24.4%

7.0%

9.9%

0%

5%

10%

15%

20%

25%

Western Cape Eastern Cape Northern Cape Free State KwaZulu-Natal North West Gauteng Mpumalanga Limpopo

Total Rent paid past month by Province(Source: General Household Survey: 2008; BMI-BRSCU Workings)

INTERPRETATION

* 24,4% of Rentals paid are in Gauteng

The percentage of households that reported receiving a government housing subsidy has increased from 5,5% in 2002 to 9,7% in 2010. The results further indicate that a larger percentage of female-headed households received subsidies compared to male-headed households. In 2010, as in preceding years, female-headed households (11,1%) were more likely to receive a housing subsidy than male-headed households (8,8%).(General Household Survey, 2010: StatsSA, P0318: 22)

Most of the rent paid is in Gauteng. This confirms that the initial strategy of GPF is to exploit the opportunities in Gauteng first. Then when geographic expansion is indicated the other Provinces can follow systematically as the learning gained from Gauteng is applied more broadly.

It can be noted that 78% of the rent paid is less than R2000 per month.


Page 39

WC EC NC FS KZN NW Gau Mpum Limp Row Total

Column total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

Occupied as boarder 2.3% 0.1% 0.4% 0.2% 0.2% 0.6% 0.7% 0.5% 0.6%

Occupied rent-free not as part of employment contract

of family member4.1% 2.4% 4.3% 4.7% 1.5% 2.6% 6.8% 2.5% 0.6% 3.5%

Occupied rent-free as part of employment contract of

family member3.6% 2.6% 6.3% 4.3% 2.0% 3.1% 3.8% 3.9% 3.3% 3.3%

Rented 21.8% 10.6% 13.0% 14.4% 15.3% 20.4% 25.7% 9.9% 5.2% 16.8%

Owned, but not yet fully paid off (e.g. with a mortgage) 22.3% 3.4% 5.0% 7.5% 6.0% 4.1% 16.2% 5.8% 2.4% 9.5%

Owned and fully paid off 45.7% 80.7% 71.0% 68.9% 75.1% 69.6% 46.8% 77.1% 87.8% 66.2%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

Ownership of Dwelling by Province

(Source: General Household Survey: 2008; BMI-BRSCU Workings)

Owned and fully

paid off

Owned, but not

yet fully paid off

(e.g. with a

mortgage)

Rented

Occupied rent-

free as part of

employment

contract of family

member

Occupied rent-

free not as part of

employment

contract of family

member

Occupied as

boarderUnspecified Column Total

Row Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

Limp 13.2% 2.5% 3.1% 10.0% 1.8% 9.2% 16.4% 9.9%

Mpum 8.1% 4.2% 4.1% 8.2% 5.0% 9.0% 3.0% 7.0%

Gau 17.2% 41.5% 37.2% 28.2% 47.0% 25.8% 35.2% 24.4%

NW 7.8% 3.2% 9.0% 7.0% 5.5% 2.9% 2.2% 7.4%

KZN 21.1% 11.8% 16.9% 11.3% 7.8% 15.4% 18.6%

FS 6.6% 5.0% 5.4% 8.3% 8.5% 2.6% 1.1% 6.3%

NC 2.4% 1.2% 1.7% 4.3% 2.7% 1.7% 2.2%

EC 15.9% 4.7% 8.2% 10.4% 9.0% 3.2% 6.7% 13.1%

WC 7.7% 26.1% 14.4% 12.4% 12.8% 45.5% 20.0% 11.1%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

Ownership of Dwelling by Province

(Source: General Household Survey: 2008; BMI-BRSCU Workings)

© BMI-BRSCU© BMI-BRSCU

For South Africa as a whole Ownership is high at some 76% with 16,8% renters. In Gauteng Ownership is 63% with Renters the highest in the Country at 25,7%. The Strategic Intent of GPF is to promote the Rental of Property and therefore Gauteng is the logical place to start.

Gauteng commands 24,4% of all types of ownership in the country, ownership is 58,7% and 37,2% of all rented property in the country is in Gauteng.


Page 40

The Quarterly Monthly Flat Rental for a 2 bedroom, standard unit of average quality in Johannesburg is about R4000 per month and the long-term growth rate is about 2,52% per quarter.

The Quarterly Monthly Flat Rental for a 2 bedroom, standard unit of average quality in Durban is about R4000 per month and the long-term growth rate is about 2,51% per quarter.


Page 41

The Quarterly Monthly Flat Rental for a 2 bedroom, standard unit of average quality in Cape Town is about R4000 per month and the long-term growth rate is about 2,52% per quarter. It is evident that rentals for comparable units are very similar in the main metropolitan areas and it is possible that the Johannesburg market sets the pace. The analysis shows a remarkably similar profile even as far as the unusual temporary spike in 2008 is concerned.

Analysis of the Q/Q percentage change for the three metropolitan areas confirms the coinciding nature of the series. It appears to be more than just coincidence.


Page 42

-40%

-20%

0%

20%

40%

60%

80%

19

89

:2

19

89

:4

19

90

:2

19

90

:4

19

91

:2

19

91

:4

19

92

:2

19

92

:4

19

93

:2

19

93

:4

19

94

:2

19

94

:4

19

95

:2

19

95

:4

19

96

:2

19

96

:4

19

97

:2

19

97

:4

19

98

:2

19

98

:4

19

99

:2

19

99

:4

20

00

:2

20

00

:4

20

01

:2

20

01

:4

20

02

:2

20

02

:4

20

03

:2

20

03

:4

20

04

:2

20

04

:4

20

05

:2

20

05

:4

20

06

:2

20

06

:4

20

07

:2

20

07

:4

20

08

:2

20

08

:4

20

09

:2

20

09

:4

20

10

:2

20

10

:4

20

11

:2

Monthly Market Flat Rental: Johnnesburg, Durban, Cape Town:

2 bedrooms (standard units; average)

Q/Q Percentage Change: Q2 1989 - Q3 2011(Source: Rode; BMI-BRSCU Workings)

Q/Q Percentage Change: Cape Town

Q/Q Percentage Change: Johannesburg

Q/Q Percentage Change: Durban

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

70%

19

90

:1

19

90

:3

19

91

:1

19

91

:3

19

92

:1

19

92

:3

19

93

:1

19

93

:3

19

94

:1

19

94

:3

19

95

:1

19

95

:3

19

96

:1

19

96

:3

19

97

:1

19

97

:3

19

98

:1

19

98

:3

19

99

:1

19

99

:3

20

00

:1

20

00

:3

20

01

:1

20

01

:3

20

02

:1

20

02

:3

20

03

:1

20

03

:3

20

04

:1

20

04

:3

20

05

:1

20

05

:3

20

06

:1

20

06

:3

20

07

:1

20

07

:3

20

08

:1

20

08

:3

20

09

:1

20

09

:3

20

10

:1

20

10

:3

20

11

:1

20

11

:3

Quarterly Monthly Market Flat Rental: Johannesburg, Durban, Cape Town:

2 Bedrooms (standard units; average)

Cum Quarterly Rental Y/Y % Change: Q1 1991 - Q3 2011 (Current Value)(Source: Rode; BMI-BRSCU Workings)

Cum Quarterly Rental Y/Y % Change: Cape Town

Cum Quarterly Rental Y/Y % Change: Johannesburg

Cum Quarterly Rental Y/Y % Change: Durban

The cumulative Y/Y percentage change also exhibits the coinciding pattern. It does appear

as if Johannesburg is the price leader.

It may well be because of the influence of institutional ownership of flats (as opposed to the

individual nature of housing ownership) with head offices determining the flat prices for the

country.


Page 43

-20

-10

0

10

20

30

40

02 03 04 05 06 07 08 09 10 11

y/y

% c

ha

nge

House price growth(80m²-400m², ≤R3,5 million)

(Source: ABSA HPI, Q4 2011)

Nominal

Real

-15

-10

-5

0

5

10

15

20

25

30

02 03 04 05 06 07 08 09 10 11

y/y

% c

ha

ng

e

Luxury house price growth(>R3,5 million-R12,8 million)


Nominal Real

-10

-5

0

5

10

15

20

25

30

02 03 04 05 06 07 08 09 10 11

y/y

% c

han

ge

Affordable house price growth(40m²-79m², ≤R480 000)


Nominal Real

5.3 The dynamics of the Property Market

The house price boom occurred from about 2000 to 2008. Then the sub-prime crisis which started in America, rapidly spread throughout the world and inevitably affected South Africa. At the same time the introduction of the National Credit Act initiated a severe clampdown on mortgage advances. The impact on house prices followed inevitably and all categories were affected < R480000 – R3,5 Million and > R3,5 Million –R12,8 Million.

The ABSA HPI shows the trend. It does appear as if a mild recovery in house prices is underway, but it could take many years to return to the levels prevailing in 2008. According to Jacques du Toit, Senior Property Analyst of ABSA Homeloans, house prices in the South African residential property market continued to show relatively low nominal growth on a year-on-year basis in February 2012, with month-on-month price trends under pressure since late last year.

In real terms, i.e. after adjustment for the effect of inflation, house prices deflated further up to January this year, based on headline consumer price inflation of 6,3% year-on-year (y/y) in the month. Average nominal price levels of houses in the various categories of the middle segment of the market were as follows in February 2012:

• Small homes (80m²-141m²): R649700;

• Medium-sized homes (141m²-220 m²): R975 000

• Large homes (221m²-400m²): R1 530 300.


Page 44

0

2

4

6

8

10

12

14

16

18

20

02 03 04 05 06 07 08 09 10 11

y/y

% c

ha

ng

e

Building cost of new houses(80m²-400m², ≤R3,5 million)


8

9

10

11

12

13

14

15

16

17

02 03 04 05 06 07 08 09 10 11

% Mortgage interest rate(Source: ABSA HPI, Q4 2011)

90

100

110

120

130

140

150

160

170

02 03 04 05 06 07 08 09 10 11

Affordability of housing(Source: ABSA HPI, Q4 2011)

Repayment/ HHDI

House price / HHDI

Index: 2000= 100

According to Jacques du Toit, Senior Property Analyst of ABSA Homeloans the slowdown in the pace of house price growth can be attributed to the combined effect of the following factors, which affect consumers and eventually impact housing demand, growth in mortgage finance and house price trends:

• After interest rates were cut by 50 basis points in late 2008 and another 450 basis points in 2009, rates were lowered by a further 150 basis points in 2010.

• Last year saw interest rates remaining unchanged, not providing any further stimulus to the housing market.

• Many consumers continued to experience some financial strain up to late 2011 against the background of a low level of household savings; rising consumer price inflation, impacting spending power; relatively high levels of household debt in relation to income; and damaged consumer credit records, affecting the accessibility of credit.

• Employment remained under pressure in the first half of 2011, improving only slightly in the third quarter of the year.

• Consumer confidence was relatively low in 2011 compared with 2010, especially in the second half of last year.

The residential property market is still impacted by economic and confidence factors affecting the household sector. Many home owners and prospective home buyers have to deal with various factors impacting their finances, such as rising inflation, a relatively high debt-to-income ratio and damaged credit records. These factors affect the affordability of housing and the accessibility of mortgage finance. The affordability of housing, as measured by the ratios of house prices and mortgage repayments to household disposable income (HHDI), improved in the past four to five years on the back of low house price growth, lower interest rates and rising disposable income (see graphs below). However, many households’ ability to take advantage of the improved housing affordability continued to be hampered by the abovementioned factors affecting their finances. (ABSA Homeloans, 7 March 2012)

The building cost of new houses has been on a decline since about 2004 and this is a positive sign for new home buyers. At the same time the interest rate is the lowest that it has been for decades. Thus it has a direct impact on affordability. Affordability has been increasing steadily as the ratio of house prices to household disposable incomes has declined. Similarly the ratio of repayments on mortgage bonds to disposable household incomes has declined.


Page 45

-4

0

4

8

12

16

20

24

28

32

36

100 000

300 000

500 000

700 000

900 000

1100 000

1300 000

1500 000

1700 000

02 03 04 05 06 07 08 09 10 11

% difference Existing New

Rand %

Average price of new and existing houses (Nominal, 80m²-400m², ≤R3,5 million)


The percentage difference between the average price of existing houses and new houses is some 35%. This provides the prospective home buyers the opportunity to save substantially on the this major investment o0f a lifetime for the

average household.

It is interesting to note the important factor of seasonality in influencing perceptions of near term activity levels. Included in seasonality is of course the difference in the seasons and the effect that this has on the environment, in terms of gardens and general outlook on life. The purchase of a house is an emotional decision based on perceptions. The other aspect of seasonality is the cyclical pattern of the property market. Investment decisions are also powerfully influenced by confidence levels (general pessimism or positive mindset) and the perception of risk. The uncertainty plaguing the world economy (economic stress) has an impact on the investment climate and the judgement whether property is a good investment.


Page 46

The strict credit environment has a fundamental influence on the ability to obtain a mortgage bond and the percentage deposit that is required which affects pricing and affordability.

The FNB Home

Investment confidence

indicator reflects the mindset of home buyers and supports the general perception and reality that mortgage bonds are very difficult to obtain. It is interesting to note that the activity level by price segment is best in the middle to low income sector and lowest in the upper income to high net worth segments.

It is of course a buyers market at the moment as indicated by the fact that 90% of properties are sold at less than asking price.


Page 47

The average percentage drop in asking prices is only 13 percent which doesn’t appear to be catastrophic at first sight. However it may well be that the asking price has already been adjusted downward in anticipation. It was stated earlier that the residential rental market is mainly served by individuals relying on buy-to-let investments. This market has reduced substantially from 28% of total mortgage advances at the peak to 5% currently. In absolute terms the decline was a massive 80% from 2005-2011 (from 9328 -1874 in numbers). The confidence indicator reflects the mood of the market. This confirms that the rental market in the household income range from R1500 to R15000 is in urgent need of development.

The estimated average gross yield on residential property is currently about 8,5%. Thus

households in the household income range of R1500 to R15000 per month can typically pay

R375 to R3750 per month (at 25% of gross HHI).


Page 48

78.7%

72.0%

83.1%83.3%

80.6% 81.3%

78.5%

74.2%

60%

70%

80%

90%

Q1-2010 Q3-2010 Q1-2011

TPN Percentage of Residential Rental Tenants in Good Standing(Source: FNB Property Barometer)

Below R3000/mRental Segment

R3000-R7000/mRental Segment

R7000-R12000/mRental Segment

Higher thanR12000/m RentalSegment

Data source: TPN (www.tpn.co.za)

This implies that up to a HHI of R10000 pm subsidised housing and Affordable or

Entrepreneurial Rental Social Housing in Sustainable Integrated mixed use Developments

are required, with affordable rental commencing at R375 pm through to R3750 pm.

The percentage of Residential Tenants in good standing shows that the best tenants are in the lower middle Rental Segment from R3000 – R7000 pm together with the upper middle segment from R7000 – R12000 pm with more than eighty percent of tenants in good standing. Ironically it is the lower segment and the upper segment that are the worst tenants at between 72% and 74% in good standing.


Page 49

The proportion of First Time Buyers (FTHB) as a percentage of total declined from 2005 to 2008, during the property boom years when people thought you couldn’t go wrong investing in property. Since 2009 the proportion of first time buyers has gradually increased from the low of 2008 to 23% in 2011. This is a positive trend and indicates an active FTHB market with a propensity to invest in property.

Primary Residential demand comprises the core of the property market at some 80% of total. It is evident that the proportion of buy-to-let investors has declined from 2007 to 2011 and this could have consequences for the rental market in future as the preference for rent versus ownership increases simultaneously. As mentioned earlier the lower to middle income rental market has been neglected in the past and the Affordable or Entrepreneurial Rental Social Housing programme is intended to redress this situation and GPF has a pivotal role to play in facilitating and encouraging the process.


Page 50

Another positive trend is evident in the percentage of Black suburban buyers. In the longer term this will certainly represent more than 50% of the total as the percentage of White suburban buyers declines closer to the demographic profile of the country. This obviously represents a very positive development for the suburban housing market. This is further evidenced by the growing percentage of Black population group buyers in the “former White suburban Regions”. Section 26 of the Constitution of the Republic of South Africa, 1996, preserves the right to housing, as follows: (1) Everyone has the right to have access to adequate housing. (2) The State must take reasonable legislative and other measures within its available resources, to achieve the progressive realisation of this right. Once again this trend evidences in a natural normalising process in suburban housing as the next graphic demonstrates.


Page 51

6.60

6.40

6.00

5.70

5.30

5.30

5.20

5.20

3.90

3.50

3.10

1.00 1.86 2.71 3.57 4.43 5.29 6.14 7.00

The development has all supporting infrastructure (eg policing, shopping, schools,

community hall, community park/playground, sport facilities, informal trading

facilities, clinics, taxi ranks, bus routes).

The development has easy access to employment opportunities

The development is Clean and safe

The development has an Attractive environment, aesthetics (flowers, trees, banners,

window display etc)

The development is programmed and promoted (information kiosks, walk-abouts etc)

The development has a range of tenure options (rent, rent-to-buy, purchase)

The public spaces are welcoming (painted, in good repair, good signage, good access,

good promotion etc)

The development has Attractive street life (active or planned, eg cafes, vending,

events etc)

The development has Vibrant cross functional users (retail, arts, entertainment)

The development is Easily interconnected with total experience of place

The development has a compelling Theme story (visual communication)

STATE OF PLAY OF AFFORDABLE HOUSING: FORCES OF PLAY ON DEMAND SIDE

(Source: BMI-BRSCU Research)

STRENGTH OF FORCES

< 1,86 = Extremely weak

> 1,85 and < 2,71 = Very weak

> 2,71 and < 3,57 = Fairly weak

> 3,57 and < 4,43 = Neutral

> 4,43 and <5,29 = Fairly strong

> 5,29 and < 6,14 = Very Strong

> 6,14 = Extremely strong

6.

FORCES AT PLAY IN AFFORDABLE HOUSING

Research was conducted into the opportunities for leveraging Affordable Housing Finance, with specific reference to affordable rental for households with a monthly income < R15 000. A structured questionnaire was developed and leading Stakeholders in this area were requested to provide their input into informing the understanding of the industry. In the preamble to the questionnaire it was emphasised that providing affordable housing and addressing the spatial disparities of South Africa’s urban landscapes are policy priorities. Quoting from the 2012 Budget Review it was pointed out that “- - - more than 3 million housing units have been delivered since 1994, but there is a remaining backlog estimated at 2.1 million houses. Population growth trends, including continued urban-rural migration patterns, put pressure on cities to adapt and expand infrastructure quickly. Nearly 70 per cent of the housing backlog is in urban areas. While demand is increasing, the pace of delivery has declined, partly due to higher building and land costs. The persistence of large informal settlements has necessitated a shift towards developing serviced sites, security of tenure and affordable rental housing. To support this outcome, R50.5 billion is allocated for low-income housing and upgrading informal settlements in secondary cities, as well as R27 billion for upgrading informal settlements in large cities over the next three years.” (2012 Budget Review, Chapter 7) The Stakeholders that completed the questionnaire are all experienced opinion leaders in the field and can be regarded as a proxy for the universe.

6.1 Demand Side Forces

To understand the state of play with respect to the affordable housing built programme, the forces of play on the demand side, the policy dynamics and the dynamics of various tenure options and choices available to individual households thereof respondents were requested to rate the forces on a scale of 1-7 (with 1= Extremely weak; 2 = Very weak; 3 = Fairly weak; 4 = Neither weak nor strong/neutral; 5 = Fairly strong; 6 = Very Strong; 7 = Extremely strong)


Page 52

55.56%

30.00%

40.00%

22.22%

-11.11%

-45.45%

-10.00%

-20.00%

54.55%

18.18%

20.00%

-80.00% -60.00% -40.00% -20.00% 0.00% 20.00% 40.00% 60.00% 80.00%

The development has all supporting infrastructure (eg policing, shopping, schools,

community hall, community park/playground, sport facilities, informal trading…

The development has easy access to employment opportunities

The development is Clean and safe

The development has an Attractive environment, aesthetics (flowers, trees,

banners, window display etc)

The development is programmed and promoted (information kiosks, walk-abouts

etc)

The development has a range of tenure options (rent, rent-to-buy, purchase)

The public spaces are welcoming (painted, in good repair, good signage, good

access, good promotion etc)

The development has Attractive street life (active or planned, eg cafes, vending,

events etc)

The development has Vibrant cross functional users (retail, arts, entertainment)

The development is Easily interconnected with total experience of place

The development has a compelling Theme story (visual communication)

STATE OF PLAY OF AFFORDABLE HOUSING: FORCES OF PLAY ON DEMAND SIDE

EXTENT TO WHICH CURRENT DEVELOPMENTS COMPARE ON THE FORCES


CURRENT DEVELOPMENTS

COMPARE POORLY

CURRENT DEVELOPMENTS

COMPARE WELL

Most of the demand side forces were rated from fairly strong to extremely strong. The highest rated forces in descending order (and the rating of current developments against these forces) were:

Rating of forces in descending order

Rating of current developments against these forces

Compare poorly

Compare well

Net Result

1. The development has all supporting infrastructure (eg policing, shopping, schools, community hall, community park/playground, sport facilities, informal trading facilities, clinics, taxi ranks, bus routes)

- 11,11% +66,67% +55,56%

2. The development has easy access to employment opportunities;

-20,0% +50,0% +30,0%

3. The development is Clean and safe; -10,0% +50,0% +30,0% 4. The development has an Attractive environment,

aesthetics (flowers, trees, banners, window display etc);

-22,22% +44,44% +22,22%

5. The development is programmed and promoted (information kiosks, walk-abouts etc);

-54,55% +9,09% -45,45%

6. The development has a range of tenure options (rent, rent-to-buy, purchase);

-33,33% +22,22% -11,11%

7. The public spaces are welcoming (painted, in good repair, good signage, good access, good promotion etc);

-40,0% +10,0% -30,0%

8. The development has Attractive street life (active or planned, eg cafes, vending, events etc)

-50,0% +30,0% -20,0%

9. The development has Vibrant cross functional users (retail, arts, entertainment)

0,0% +54,55% +54,55%

10. The development is easily interconnected with total experience of place

-27,27% +45,45% +18,18%

11. The development has a compelling theme story (visual communication)

-20,0% +40,0% +20,0%


Page 53

Rental, 62.50%

Rental, 10.00%

Rental, 63.64%

Rental, 45.45%

Rental, 41.67%

Rental, 66.67%

Rental, 36.36%

Rental, 44.93%

Purchase, 37.50%

Purchase, 60.00%

Purchase, 18.18%

Purchase, 54.55%

Purchase, 58.33%

Purchase, 16.67%

Purchase, 54.55%

Purchase, 44.93%

0.00%

30.00%

18.18%

0.00%

0.00%

16.67%

9.09%

10.14%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 110% 120%

Indicate the main preference of SOCIAL HOUSING HOME-SEEKERS (HHI range R1 500 –

R3 500)

Indicate the main preference of SOCIAL HOUSING MARKET DEVELOPERS (In the House

Price range from R80 000 – R150 000)

Indicate the main preference of SOCIAL HOUSING INSTITUTIONS (In the HHI range

R1 500 – R3 500)

Indicate the main preference of ENTREPRENEURIAL RENTAL SOCIAL HOUSING market

HOME SEEKERS (In the HHI range R3 500 – R15 000)

Indicate the main preference of ENTREPRENEURIAL RENTAL SOCIAL HOUSING market

DEVELOPERS (In the House Price range from R150 000 – R450 000)

Indicate the main preference of SOCIAL HOUSING INSTITUTION developers (In the HHI

range R1 500 – R3 500)

Indicate the main preference of Financial Institutions (in the HHI range from R3 500 to

R15 000)

Total

Preference for Rental or Purchase

Ten

ure

Op

tio

ns

FORCES AT PLAY IN AFFORDABLE HOUSING:

DYNAMICS OF TENURE OPTIONS AND CHOICES AS RATED BY STAKEHOLDERS


Rental Purchase Rent-to-buy

It is evident from the foregoing table where the priority focus has to be in existing as well as new developments. Factors 5, 7 and 8 have to do with soft design and promotional issues whilst factor 6 has to do with fundamental policy issues. It can be argued that the rating of these forces is typical of all discerning and normal suburban households. They contribute to a powerful place image and an environment attractive for investment. It is important to pay attention to these factors in the design of successful Integrated Housing Developments. As stated by one respondent:

The bricks and mortar upgrades are happening. However, the social infrastructure to turn these areas into communities is not developing. Public spaces, parks, schools and community centres are not being provided.

To quote from the Social Housing Policy:

“. . . government has become increasingly concerned about the quality and the sustainability of the living environments it creates. Social housing is seen as a potentially important contributor to achieving such quality environments. Of central importance, however, is the recognition that quality is only partially a function of the housing units themselves. Equally or even more important is attention to the public environment. By moving away from a policy based on subsidising individual units - to a project- based approach, consideration of the public environment can be made integral to project design.” (Social Housing Policy: Part 3: The National Housing Code: 2009: 39)

To understand the state of play with respect to the affordable housing built programme, the dynamics of various tenure options and choices available to individual households thereof respondents were requested to indicate THEIR VIEW of the preference for the following tenure options and choices in the Institutional and Entrepreneurial Rental Housing market.

The majority of respondents felt that: • SOCIAL HOUSING HOME SEEKERS would prefer RENTAL (62,5%) over purchase;

• SOCIAL HOUSING MARKET DEVELOPERS would prefer PURCHASE (60%) or RENT-TO-BUY (30%);


Page 54

6.40

6.40

6.10

1.00 1.86 2.71 3.57 4.43 5.29 6.14 7.00

Affordable Rental Social Housing Subsidy Programme (For monthly HHI range R1 500 – R3 500)

Institutional Subsidy Programme

Entrepreneurial Rental Social Housing Subsidy Programme (For monthly HHI range R3 500 – R15 000)

FORCES AT PLAY IN AFFORDABLE HOUSING: IMPORTANCE OF POLICY DYNAMICS


RATING OF IMPORTANCE

< 1,86 = Extremely unimportant

> 1,85 and < 2,71 = Very unimportant

> 2,71 and < 3,57 = Fairly unimportant

> 3,57 and < 4,43 = Neutral

> 4,43 and <5,29 = Fairly important

> 5,29 and < 6,14 = Very important

> 6,14 = Extremely important

• SOCIAL HOUSING INSTITUTIONS would prefer RENTAL (63,64%) or RENT-TO-BUY (18,18%);

• ENTREPRENEURIAL SOCIAL HOUSING HOME SEEKERS would prefer PURCHASE (54,55%) over rental;

• ENTREPRENEURIAL SOCIAL HOUSING DEVELOPERS would prefer PURCHASE (58,33%) over rental;

• SOCIAL HOUSING INSTITUTION DEVELOPERS would prefer RENTAL (66,67%) or RENT-TO-BUY (16,67%);

• FINANCIAL INSTITUTIONS would prefer PURCHASE (54,55%) or RENT-TO-BUY (9,09%);

The (unweighted) TOTAL preference is for PURCHASE (44,93%) or RENT-TO-BUY (10,14%). Note: Rent-to-buy can serve as proxy for both PURCHASE or RENTAL depending on the majority preference between purchase or rental.

To understand the state of play with respect to the affordable housing built programme, respondents were requested to give their view on the Policy dynamics by rating on a scale of 1-7 how important the following policies and stakeholders are in the Institutional and Entrepreneurial Rental Housing market (1= not at all important; 2 = fairly unimportant; 3 = very unimportant; 4 = neutral; 5 = fairly important; 6 = very important; 7 = extremely important)

All the Policies are perceived to be very to extremely important. One respondent commented as follows: 1. There is currently a complete lack of any viable policy to deal with low income and

indigent households in the inner city.

2. Failure of National/Provincial/Local government to deal decisively with this problem is

severely hampering the private sector in their efforts to acquire and upgrade building in

order to provide affordable rental accommodation in the inner city.


Page 55

3.90

3.7

2.9

2.8

2.5

2.1

1.00 1.86 2.71 3.57 4.43 5.29 6.14 7.00

Availability of serviced land

Availability of development financing

Availability of Developer Driven Individual Subsidy Scheme

Availability of Affordable Rental Housing Subsidy

Availability of Individual Subsidy Scheme

Availability of Entrepreneurial Rental Social Housing Subsidy

STATE OF PLAY IN AFFORDABLE HOUSING: FORCES OF PLAY ON SUPPLY SIDE


RATING OF AVAILABILITY

< 1,86 = Totally unavailable

> 1,85 and < 2,71 = Very unavailable

> 2,71 and < 3,57 = Fairly unavailable

> 3,57 and < 4,43 = Neutral

> 4,43 and <5,29 = Fairly available

> 5,29 and < 6,14 = Very available

> 6,14 = Extremely available

3. The inner city property scheme has failed to deliver a single refurbished building to house

poor and indigent households so that developers can clear derelict and run-down

buildings and turn these into decent affordable rental units.

4. National and Provincial government must recognise that it is far more effective and cost

efficient to refurbish the hundreds of Bad Buildings in the inner city than to start

Greenfields projects outside the city, far away from jobs and amenities.

6.2 Supply Side Forces

The respondents rate all the Supply side forces as negative from neutral to Totally Unavailable. Clearly this is part of the delivery problem of practitioners in getting meaningfully engaged in this very important sector. The policies are seen to be sound and progressive and extremely positive but the difficulties arise in the implementation. There is great frustration in bureaucratic procedures that are seen to stifle access to essential resources. The respondents made some suggestions: Other: Availability of affordable electricity, water and other municipal services at preferential rates/tariffs for low income tenants living in the inner city. Comments: 1. The City Council/Provincial/National government should be providing incentives to get

private developers to invest in the inner city. The opposite is the case – the council

seems to go out of its way to make conditions as onerous as possible for private

developers.

2. Because of the constraints imposed by recent rulings in the Constitutional Court, the

process of clearing over-crowded and unsafe buildings has ground to a halt. There are

currently approximately 600 Bad Buildings in Johannesburg, which are log-jammed

because of these legal shackles of City Council/Provincial inaction to break the log jam.

The creation of additional affordable rental housing stock is being severely hampered as

a result.


Page 56

5.40

5.00

4.80

3.80

3.60

3.10

2.90

1.00 1.86 2.71 3.57 4.43 5.29 6.14 7.00

The National Housing Code

Social Housing Policy

Institutional subsidies

Social and Rental Interventions

Financial Intervention policy

Integrated Development Plans

Community Residential Units

Effectiveness of Legislative and Provincial Government Policy Framework


RATING OF EFFECTIVENESS

< 1,86 = Totally ineffective

> 1,85 and < 2,71 = Very ineffective

> 2,71 and < 3,57 = Fairly ineffective

> 3,57 and < 4,43 = Neutral

> 4,43 and <5,29 = Fairly effective

> 5,29 and < 6,14 = Very effective

> 6,14 = Extremely effective

The intent of Government is good and sincere. There must be a greater effort to develop the

collaborative effort between Government and the Private Sector. This, after all is the so-

called “Golden Triangle” which is characteristic in a successful democracy. As stated in the

Social Housing Policy;

With regard to delivery, SHIs are envisaged to be a key delivery agent of social housing units

(either as SHIs or via PPPs). In addition, the possibility of the private sector as a deliverer of

social housing via accredited projects will be introduced. Partnerships between SHIs and

Local Governments (LGs) are important and SHIs and LGs should jointly identify

restructuring projects (delivery initiation) and together submit proposals for funding. It is also

proposed that the South African Local Government Association (SALGA) should facilitate the

role of local governments in social housing through the development of guidelines for its

members in co-operation with ND.(Social Housing Policy: Part 3: National Housing Code:

2009: 51)

The respondents rate The National Housing Code as very effective, Social Housing Policy as

fairly effective and Institutional Subsidies as fairly effective.

They rate Social and Rental and Financial intervention policy as neutral, Integrated

Development Plans as fairly ineffective and Community Residential Units as very ineffective.

All of these interventions and policies are well intended and sound, but again it is in the

implementation that the process breaks down.

If the bottlenecks could be ameliorated the Government Housing Policy will make a major

contribution in solving the housing challenge.


Page 57

6.80

6.40

6.10

6.10

5.30

5.20

4.80

4.70

1.00 1.86 2.71 3.57 4.43 5.29 6.14 7.00

Delivery Agents/Developers

National Housing Finance Corporation

Municipalities

Social Housing Institutions

The Provincial Departments of Human Settlements

Social Housing Foundation

Social Housing Regulatory Authority

The National Department of Human Settlements

IMPORTANCE OF PLAYERS IN THE AFFORDABLE HOUSING MARKET






> 3,57 and < 4,43 = Neutral




Respondents were asked for their view on the importance of the players in the affordable

housing market by rating their perceived importance on a scale of 1-7 (1= not at all important;

2 = fairly unimportant; 3 = very unimportant; 4 = neutral; 5 = fairly important; 6 = very

important; 7 = extremely important)

In the above graphic the players are ranked in descending order of perceived importance in

the Affordable Housing market. It can be seen that Delivery Agents/Developers and the

National Housing Finance Corporation (NHFC) are rated as extremely important,

Municipalities, Social Housing Institutions and the Provincial Departments of Human

Settlements as very important and the Social Housing Regulatory Authority and The National

Department of Human Settlements as fairly important.

It is concluded once again that all players are important and it is the quality of relationships

that is required as the cement to weld them together in collaborative effort. It can be

observed that the perception is that the closer to the action on the ground the more important

the player. The quality of policy making is above reproach but perhaps the in-depth

knowledge of the policies is lacking as well as the sense of urgency in addressing this most

important challenge.


Page 58

Sell-off, 80.00%

Sell-off, 22.22%

Sell-off, 41.67%

Sell-off, 22.22%

Sell-off, 22.22%

Sell-off, 22.22%

Sell-off, 45.45%

Sell-off, 11.11%

Sell-off, 34.62%

Ownership, 20.00%

Ownership, 77.78%

Ownership, 58.33%

Ownership, 77.78%

Ownership, 77.78%

Ownership, 77.78%

Ownership, 54.55%

Ownership, 88.89%

Ownership, 65.38%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Developers (e.g. Calgro M3, RBA etc)

Financiers (e.g. Gauteng Partnership Fund)

Social Housing Institutions (e.g. NURCHA)

National Department of Human Settlements

Provincial Departments of Human Settlements

Municipalities

Financial Institutions/Banks

NHFC

Total

Percentage of Stakeholders Preferring Sell-off versus Purchase

Sta

eh

old

ers

STAKEHOLDER CHOICE OF SELL-OFF OR OWNERSHIP OF DEVELOPMENT


Respondents were requested to give THEIR VIEW of the choices made by various

Stakeholders, developers/institutions relating to SELL-OFF versus OWNERSHIP of rental

stock.

One respondent commented that apart from Developers the other institutions listed do not have the skills and resources to manage rental stock once they have facilitated/financed the development. They should sell these units to companies which specialise in the rental business.

It can be seen that the respondents believe that, of all the stakeholders listed, only the

Developers would prefer to SELL-OFF the rental stock rather than have the ownership,

implying that they would prefer not to manage it. As the one respondent mentioned the

Developers are probably the best equipped to manage the rental stock. However it is the

view of the Consultant that such a management role would have to be performed by

representatives of all the participants/equity partners involved in the SPV established. Over

time there will be a phase out of certain players as their role in the venture diminishes.

Respondents were asked to give THEIR VIEW on the attitude of financial institutions towards

FINANCING OF AFFORDABLE RENTAL VERSUS END USER FINANCING.

The overwhelming perception of the respondents is that the Banks/Financial Institutions will

prefer outright purchase rather than rental.

Naturally if this perception is factual then it would be difficult to obtain equity participation

from them in an SPV to facilitate Affordable or Entrepreneurial Rental Social Housing.

This could present a serious stumbling block to the Rental Housing process.


Page 59

Affordable Rental, 22.22%








Purchase, 77.78%

Purchase, 63.64%

Purchase, 63.64%

Purchase, 83.33%

Purchase, 62.50%

Purchase, 100.00%

Purchase, 100.00%

Purchase, 73.58%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

ABSA Bank

First National Bank

Standard Bank

Investec Bank

Nedbank

S A Home Loans

SANLAM

Total

Stakeholder view

Fin

an

cia

l In

stit

uti

on

STAKEHOLDER VIEW ON ATTITUDE OF FINANCIAL INSTITUTIONS TOWARDS

FINANCING OF AFFORDABLE RENTAL VS END-USER FINANCING


Affordable Rental Purchase

7.00

6.80

6.70

6.20

6.00

5.90

5.60

5.30

4.70

4.60

1.00 1.86 2.71 3.57 4.43 5.29 6.14 7.00

Credentials of Developer in delivery of projects

Credentials of Planning team

Credentials of Developer/outsource as Landlord in maintenance of project, rent

collection and Administration

Possibility to convert percentage of Rental Stock to Sale with end-user financing over

time

Access to Institutional Subsidy (for Affordable Rental Social Housing or Affordable

Entrepreneurial Social Housing)

Government participation in project through provision of Affordable Rental Social

Housing and Entrepreneurial Rental Social Housing Subsidies

Credentials of Equity Partners

Access to reduced Cost of Finance through Equity Partners

Equity participation of Partners

Equity participation by Developer

Importance of Risk Dynamics

Ris

k D

yn

am

ics

IMPORTANCE OF RISK DYNAMICS UNDER CONSIDERATION IN FINANCING

AFFORDABLE RENTAL HOUSING






> 3,57 and < 4,43 = Neutral




Respondents were asked to give THEIR VIEW on the RISK DYNAMICS under consideration

towards financing of affordable rental housing by rating on a scale of 1-7 the importance of

the listed RISK DYNAMICS in the Institutional and Entrepreneurial Rental Housing market

(1= not at all important; 2 = fairly unimportant; 3 = very unimportant; 4 = neutral; 5 = fairly

important; 6 = very important; 7 = extremely important)


Page 60

It is interesting to note that all the factors listed were rated from fairly important to extremely

important. It does reinforce the necessity of collaboration in the delivery and ongoing

management of rental projects.

As stated by a respondent:

Municipal and Provincial government must create an investor-friendly environment and

private sector will create the required volume of affordable rental housing stock.

For low-end social housing stock (R1000 – R3500 p.m.), government should provide

subsidies that enable private developers to rent at low rentals.

The credentials of the Developer in the delivery of projects was rated the most important,

followed by the credentials of the planning team and the developer as landlord in the ongoing

maintenance of the project, rent collection and administration.

The possibility to convert percentage of Rental Stock to Sale with end-user financing over

time is also rated as extremely important.

This is followed by four very important factors ie Access to Institutional Subsidy (for

Affordable Rental Social Housing or Affordable Entrepreneurial Social Housing); Government

participation in project through provision of Affordable Rental Social Housing and

Entrepreneurial Rental Social Housing Subsidies; Credentials of Equity Partners and Access

to reduced Cost of Finance through Equity Partners.

The last two factors in order of importance, Equity participation of Partners and Equity

participation by Developer, are nevertheless still rated as fairly important. This emphasizes

the complex and high risk nature of this type of development and provides the rationale for

risk sharing amongst trusted and credible partners.

As stated by the National Housing Policy:

There are a number of generic risks applicable to social housing projects that need to be

considered, including:

• Development Risk comprising the risks related to undertaking the rental housing

development, specifically design and construction risks and marketing risks.

• Property Management Risks comprising operating (cost management), revenue (rental

collection) and market (demand) risk.

• Financing Risk which comprises interest rate and default/income interruption risk.

• Institutional Risks that include governance, fraud and theft, and IT system risks.

It is not possible to develop generic responses to all of the risks at a policy level. However, it

is desirable that best practice and norms and standards be developed that define, offset and

manage these risks. A function of the Social Housing Corporation will be to promote this

process of appropriate risk management. (Social Housing Policy: Part 3: The National

Housing Code: 2009: 80,81)


Page 61

6.90

6.70

6.50

6.50

6.40

6.30

6.30

6.30

6.00

5.80

5.60

5.60

5.40

1.00 1.86 2.71 3.57 4.43 5.29 6.14 7.00

Access to Institutional and Entrepreneurial Rental Funding

Strategic Risk Management

Relationship with Affordable Housing Development Stakeholders

Ability to develop Alliances and Partnerships with all Participants

Skill in facilitating Affordable Housing Development, Public, Private Sector

Partnerships

Access to low interest funding

Fast application turnaround time

Product support, quality service

Pre-knowledge of planned Developments and contact with all Sustainable Integrated

Housing Development Stakeholders

Networking, Negotiating, deal making

Institutional Subsidy and Venture Capital management

Alliance relationships

Relationship with Key Personnel in DHS by Province

Importance of Strategic Issues as rated by Stakeholders

Str

ate

gic

Iss

ue

s

IMPORTANCE OF STRATEGIC ISSUES IN FACILITATING FUNDING FOR

AFFORDABLE RENTAL(Source: BMI-BRSCU Research)





> 3,57 and < 4,43 = Neutral




Respondents were requested to give THEIR VIEW on the STRATEGIC ISSUES that should

guide Companies in their strategy to facilitate increased funding for affordable rental in order

to realize the Provincial strategic outcome towards development of affordable rental stock at

scale by 2014, by rating on a scale of 1-7 how important the listed STRATEGIC ISSUES are

in the Institutional and Entrepreneurial Rental Housing market (1= not at all important; 2 =

fairly unimportant; 3 = very unimportant; 4 = neutral; 5 = fairly important; 6 = very important; 7

= extremely important)

It is interesting to note that all the Strategic Issues listed were rated from very important to

extremely important.

The top eight Strategic Issues listed were rated as extremely important.

1. Access to Institutional and Entrepreneurial Rental Funding;

2. Strategic Risk Management;

3. Relationship with Affordable Housing Development Stakeholders;

4. Ability to develop Alliances and Partnerships with all Participants;

5. Skill in facilitating Affordable Housing Development, Public, Private Sector Partnerships;

6. Access to low interest funding;

7. Fast application turnaround time;

8. Product support, quality service.

The last 5 Strategic Issues listed were rated as very important:

9. Pre-knowledge of planned Developments and contact with all Sustainable Integrated

Housing Development Stakeholders;

10. Networking, Negotiating, deal making;

11. Institutional Subsidy and Venture Capital management;

12. Alliance relationships;

13. Relationship with Key Personnel in DHS by Province.


Page 62

7. ALIGNMENT

As the foregoing analysis demonstrates, the success of any policy will depend on the extent

to which alignment behind a compelling vision can be mobilized. It has been demonstrated

that in fact an igniting National Housing Vision does exist and that alignment to this Vision

has been achieved by the important Stakeholders including GPF. What remains is the

collaborative effort required to achieve the laudable goals articulated by the Stakeholders.

The Social Housing Policy has the following to say about alignment:

Three primary areas of alignment are considered in this section: alignment of social housing

policy with government priorities, alignment with the principles of vertical and horizontal

equity, and alignment with the broader housing market to avoid distortions.

Secondary alignment is considered with respect to existing ND programmes and other

government department programmes. Furthermore, the policy document needs to be aligned

with the new strategy and direction of the National Department.

With respect to alignment with national government priorities, a strong case has been made

for social housing to be used as a targeted instrument of urban restructuring. This

conceptualisation aligns with broader national priorities of government. In addition, social

housing is in line with the importance accorded to rental stock, access to infrastructure,

facilities and amenities, improving the quality of life of people, and urban renewal

programmes.

Alignment has also been considered with principles of vertical and horizontal equity. Social

housing promotes vertical equity through facilitating access to quality accommodation in well-

located areas for low income earners who are largely excluded from such housing in the

market place. Horizontal equity is more problematic insofar as the magnitude of the subsidy

is higher than that which may apply to equally poor people who are beneficiaries of, for

example, government’s incremental housing programme. This differential is justified however

because the primary purpose of the programme is restructuring not bulk housing provision.

Moreover horizontal equity is served by retaining the stock produced for the long term

advantage of the poor and not transferring the benefit of ownership to individual occupants.

The beneficiaries of other government housing programmes, whilst receiving smaller

subsidies, can use these subsidies for private gain.

With regard to alignment with the housing market, it is recognized that the introduction of

social housing will have an impact on the market in some areas. These impacts are both

positive and negative in nature. However an element of distortion is cause for concern, and is

countered by the proposal that the private sector is also able to access social housing grants

for social housing delivery. Thus private sector delivery through accredited social housing

projects, therefore, should significantly limit the market distorting potential of these proposals

and encourage further delivery.

The social housing policy relates to a number of existing housing programmes and

instruments, including:

• institutional subsidy


Page 63

• the hostels policy

• the phasing out of government stock and the discount benefit scheme

• the Job Summit

In general social housing is compatible with most of these programmes and can be used in

support of the programmes. However it must be noted that the social housing policy and

SHIs must not be seen as easy solutions to existing complex problems such as the

management of hostels and public housing stock.

It should be noted that the social housing policy is located within the Social (Medium-density)

Housing Programme identified in the ND’s Plan for the Development of Human Settlements

(2004), noted above. This programme aims “to facilitate the production of effectively

managed institutional housing in the areas where demand for institutional or managed

housing, of all types, exists”. Social housing forms one component of this ‘managed

institutional housing’, along with household rental housing, hostels, state-owned rental

housing, transitional housing and communal housing. (Social Housing Policy: Part 3: The

National Housing Code: 2009: 85, 86)

Dr.Llewellyn B Lewis, Principal Consultant, BMI Building Research Strategy Consulting Unit cc, 9 Adrienne Street, Strathavon, Sandton, PO Box 784133, Sandton 2146. [email protected] www.strategicforum.co.za Tel: (011) 884 2075 Cell 082 884 0063 Fax 086 6472 494

April 2012

leveraging housing finance - gpf · paradigm regression paradigm paralysis paradigm shift paradigm...

Documents