un housing finance systems in south africa

8/7/2019 UN Housing Finance Systems in South Africa

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UNITED NATIONS HUMAN SETTLEMENTS PROGRAMME

HOUSING

FINANCE SYSTEM

In South Arica


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Te Human Settlements Finance Systems Series

Housing Finance System in South Arica

First published in Nairobi in 2008 by UN-HABIA

Copyright United Nations Human Settlements Programme. 2008

HS/947/07E

ISBN: 978-92-1-132022-0 (series)

ISBN: 978-92-1-132007-7

DisclamerTe designations employed and the presentation o the material in this publication donot imply the expression o any opinion whatsoever on the part o the Secretariat o theUnited Nations concerning the legal status o any country, territory, city or area or o itsauthorities, or concerning the delimitation o its rontiers o boundaries.

Views expressed in this publication do not necessarily reect the views o the UnitedNations Human Settlements Programme, the United Nations, or its Member States.

Excerpts may be reproduced without authorization, on condition that the source isindicated.

Acknowledgements

Principal Editor and Manager: Xing Quan Zhang

Principal Author: Vuyisani Moss

English Editor: Ingrid UysDesign and Layout: Anne Musotsi


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At the dawn o this new urban era, UN-HABIA re-search shows that by 2030, two-thirds o humanity willbe living in towns and cities. We thus live at a time

o unprecedented, rapid, irreversible urbanisation. Te cities

growing astest are those o the developing world. And theastest growing neighbourhoods are the slums. Indeed, theglobal number o slum dwellers is now at or close to the 1billion mark. Excessive levels o urbanization in relation tothe economic growth have resulted in high levels o urbanpoverty and rapid expansion o unplanned urban settle-ments and slums, which are characterized by a lack o basicinrastructure and services, overcrowding and substandardhousing conditions.

Yet housing and the services that should be provided with it are one o the most basichuman needs. It is enshrined in various international instruments, including the HabitatAgenda. And reducing the number o slum dwellers around the world is a cornerstone othe Millennium Development Goals set to ght poverty around the world. So i we ailto achieve the Goals in towns and cities, we will simply ail to achieve them at all.

It was with this crisis in mind that the United Nations General Assembly decided in itsresolution o 26 February 2002 to transorm United Nations Commission on HumanSettlements into a ully pledged programme. Te General Assembly in its resolution

called on UN-HABIA to take urgent steps to ensure a better mobilization o -nancial resources at all levels, to enhance the implementation o the Habitat Agenda,particularly in developing countries. It also stressed the commitments o memberstates to promote broad access to appropriate housing nancing, increasing the supplyo aordable housing and creating an enabling environment or sustainable develop-ment that will attract investment.

Te Habitat Agenda recognizes that housing nance systems do not always respondadequately to the dierent needs o large segments o the population, particularly the

vulnerable and disadvantaged groups living in poverty and low income people. It callsUN-HABIA to assist member states to improve the eectiveness, efciency and ac-cessibility o the existing housing nance systems and to create and devise innovative

FOREWORD


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housing nance mechanisms and instruments and to promote equal and aordableaccess to housing nance or all people.

In our quest to reach as many people as possible, a cornerstone o our agencys newMedium-term Strategic and Institutional Plan is partnerships. We have no choice but tocatalyze new partnerships between government and the private sector. Tis is the onlyway to nance housing and inrastructure at the required scale the scale needed tostabilize the rate o slum ormation, and subsequently reduce and ultimately reverse thenumber o people living in lie-threatening slum conditions.

It is clear that in the coming 20 years, conventional sources o unds will simply beunavailable or investment at the scale required to meet the projected demand or hous-

ing and urban inrastructure. Many countries around the world continue to ace decitsin public budgets and weak nancial sectors. Local governments have started to seeknance in national and global markets, but this is only in its initial phase.

New mortgage providers have emerged, including commercial nancial institutions andmortgage companies. But only middle and upper income households have access tosuch nance, while the poor are generally excluded. Although social housing is becom-ing less important in Europe and in countries with economies in transition, the needto provide shelter that is aordable to low income households still exists, including in

developing countries.

Tis is why the exchange o inormation and knowledge on human settlements nancesystems is so important. It is why it receives increased recognition in acilitating thedevelopment o human settlements nance systems and in turning knowledge into ac-tion or developing practical human settlements nance methods and systems or thesepressing problems.

Our Human Settlements Finance Systems series documents the state, evolution andtrends o human settlements nance in member states, and examines the actors and

orces which drive the development o human settlements nance systems and theroles o dierent institutions and actors in shaping the systems and trends, and reviewshuman settlements nance systems. It presents an interesting review o policies, instru-ments, processes and practices. It examines the strengths and weakness o these systemsand practices, their relations to the housing sector and the broad economic and socialsectors, and lessons learned rom practices.


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Indeed, the country review studies we present are a valuable resource or member Statesbecause it is a body o work that also shows how human settlements nance systems and

models can be applied to local use and thus provide a wider range o options or humansettlements nance. Te series also serves as guidebooks or policy makers, practitionersand researchers who have to grapple daily with human settlements nance systems,policies and strategies.

Dr. Anna ibaijuka

Under-Secretary-General and

Executive Director

UN-HABIA, Nairobi, 2008


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TABLE OF CONTENTS

FOREWORD i

CHAPTER 1

The South Arican Econom and Demographics 1

1.1 Introduction 1

1.1.1 South Arica Economy 2

1.1.2 Perormance o the Economy 2

1.2. South Arica Demographics 3

1.2.1 The HIV/AIDS Pandemic 3

1.2.2 HIV/AIDS and Housing Finance 3

1.2.3 Mortgage Insurance Cover 4

CHAPTER 2

The Histor o Housing in South Arica 5

2.1 From Pre 1922 to 2004 5

2.2 Goernment Deelopment Strateg andHousing Finance Beore 1994 7

2.3 The Reconstruction and Deelopment Programme (RDP) 8

2.3.1 Addressing Socio-economic Imbalances andUneven Distribution o Resources 9

2.4 The Record o Understanding (RoU) 9

2.5 The Eolution o the South Arican Housing Finance Sstem 10

2.6 Housing Finance and New Political Dispensation 12


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CHAPTER 3

Goernment and Public Sector Role Plaers in Housing Finance Delier 15

3.1 The Eolution o the New Polic Enironment 16

3.1.1 The Rental Housing Act (1999) 16

3.1.2 The Home Loan and Mortgage Disclosure Act (2000) 17

3.1.3 The Housing Consumer Protection Measures Act (1998) 17

3.1.4 The Prevention o Illegal Eviction and

Unlawul Occupation o Land Act (1998) 18

3.1.5 The Community Reinvestment Bill (2003) 18

3.1.6 The Social Housing Policy 18

3.1.7 The Public Sector Hostel Redevelopment Programme 19

3.2 Goernment Ependiture 19

3.2.1 The Capacity Building Strategy 20

3.2.2 The National Housing Subsidy Programme 22

3.3 The National Housing Institutions 22

3.3.1 The NHBRC 23

3.3.2 The NHFC 23

3.3.3 The NURCHA 24

3.3. The National Programmes 25

3.3.4 The Mortgage Indemnity Fund 26

3.3.5 The Servcon Housing Solutions 26

3.3.6 The Thubelitsha Homes 27

3.3.7 The Social Housing Foundation 28

3.3.8 The Peoples Housing Process 29

3.3.9 The Peoples Housing Partnership Trust 29

3.3.10 The Rural Housing Loan Fund 30

3.3.11 The Urban Renewal 30

3.3.12 The Urban Upgrading and Development Programme 31

3.3.13 The Settlement Policy and Urban Development 323.1.14 Summing up Have Government Strategies and Institutions

Fullled their Mandates? 33

3.3.15 The Rental Housing Strategy 33

3.4. The Inormal Rental Maret 35

3.5 The NGO and Multilateral Agencies Funding 35


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8. LESSONS AND RECOMMENDATIONS FOR DEVELOPING MARKETS 55

9. REFERENCES 58

LIST OF TABLES 61

ANNEX 1 63

ANNEX 2 69

ANNEX 3 73


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LIST OF ABBREvIATIONS

ABSA Amalgamated Banks o South Arica

BASA Banking Association o South Arica

BoE Bank o Executors

CIDA Canadian International Development Agency

CSIR Center or Scientic and Industrial Research

EU European Union

FSB Financial Services Board

FSC Financial Sector Charter

GDP Gross Domestic Product

GEAR Growth, Employment and Redistribution Strategy

GZ German echnical Assistance Corporation

IMF International Monetary Fund

JHC Johannesburg Housing Company

LOA Loan Ofcers Association

MBS Mortgage Backed Securities

MFRC Micro Finance Regulatory Council

MIF Mortgage Indemnity Fund

MoU Memorandum o Understanding


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NGO Non Government Organisation

NHBRC National Home Builders Registration Council

NHF National Housing Forum

NHFC National Housing Finance Corporation

NPLs Non Perorming Loans

NURCHA National Urban Reconstruction and Housing Agency

OBA Ofce o the Banking Adjudicator

PHP Peoples Housing Process

PHP Peoples Housing Partnership rust

PIPs Properties in Possession

PPP Public Private Partnership

RDP Reconstruction and Development Programme

RHLF Rural Housing Loan Fund

RoU Record o Understanding

SAHAC South Arican Housing Advisory Council

SARB South Arican Reserve Bank

SHF Social Housing Foundation

SHIs Social Housing Institutions

SPVs Special Purpose Vehicles

UHF rust or Urban Housing Finance

UN United Nations

USA United States o America


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USAID United States Agency or International Development

UUDP Urban Upgrading and Development Programme

WB World Bank


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CHAPTER ONETHE SOUTH AFRICAN ECONOMyAND DEMOGRAPHICS

Te act that a staggering 16 millionpeople (36%) have no access to hygienicsanitation, and 3.5 million people have noaccess to sae drinking water, is astound-ing2. Te irony is that governments suc-cess in ast tracking the delivery o basic

services to as many poor communities aspossible is causing local governments tobuckle under the pressure. Tough thereis a shortage o housing stock or mid-dle-income earners, the poorest segmento the population has beneted the mostrom the government subsidy programme.Households in the low-income brackethave been the primary beneciaries ogovernment capital subsidy programmes

with more than 1.8 million houses builtbetween 1994 to March 2005.

Te government plans to build morehouses by 12% rom the current averageo 200 000 units per year in an intensiveeort to ree the nation o slums areas3.Te aim is not only to increase the con-

2 Financial Mail, September 2005

3 National Department o Housing website, national deliveryreport

1.1 INTRODUCTION

Te scale o the housing problem and thelack o delivery in South Arica is dem-onstrated by the demand or aordablehousing and by the number o peopleliving in slums and inormal housing con-ditions. Te crisis is urther compounded

by the unwillingness o traditional lendersto make loans to low-income earners orhousing. On the demand side, the govern-ment prides itsel on its impressive recordo delivery o more than I.8 million housessince 1994. Te backlog, however, is mon-umental as is the number o people under-housed or un-housed has grown rapidlyrom 2.4 million to 3 million households1.Te scale o the demand or housing led

government to hastily investigate alterna-tives to deal with the Reconstruction andDevelopment Programmes promise obetter living conditions and standards orthe majority o South Aricans.

1 Please see annexure 1 on the breakdown o housingdelivery, backlog, type o dwelling etc.


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in the percentage o the population withHIV/AIDS and it is estimated that one

out o every nine South Arican has HIV/AIDS. Tis problem is recognised by thegovernment who has set aside a budgeto R2.1 billion to und an anti-retroviraldrug provision programme over the nextthree years. Te amount allocated bygovernment towards HIV/AIDS between2004/2005 and 2006/2007 totals R12.3billion9

1.2.2 HIv-AIDS AND HOUSING FINANCE

In the vast majority o cases, however, thesecurity oered by a borrower is not su-cient and a sustainable income is crucialor the viability o the loan. In these cases,the bank requires lie assurance, and ithe applicant is HIV+, he/she experiences

difculty getting that insurance, and it islikely to be at a very high premium level.According to Ndinda (2004), the securityo tenure or individuals inected withHIV/AIDS is a critical issue in SouthArica. She asserts that people inectedwith HIV-AIDS are most likely to losetheir land and housing in the absence olie assurance policies.

In an eort to deal with this potentialscourge, the banks, through their motherbody, the Banking Association o SouthArica, are working with the Lie OfcersAssociation and the Financial ServicesBoard to try and nd a mechanism that

9 National Department o Health budget report

o Finance announced that the decit willrise to 3.1% o Gross Domestic Product

in 2004/20058.

1.2 DEMOGRAPHICS

South Arica has a total population o 44.8million o which 18.261,294 (39%) is eco-nomically active. According to a LabourForce Survey by Statistics South Aricaonly 11.91 million o the economically ac-

tive are employed. Te ofcial unemploy-ment rates stand currently at 26.5% o thecountrys economically active population.I one includes those who have given uplooking or employment, it is closer to40.5%. However, ofcial statistics mustbe viewed on the basis that statistics orthe inormal sector o the economy aregenerally not available. Te government

views unemployment seriously and it isinvestigating the introduction o wagesubsidies or employers to boost employ-ment in the short-term or unskilled butemployable persons. Te governmentalso intends to boost its public worksprogramme to provide employment tounskilled and unemployed persons, con-centrating on 21 urban and rural nodesidentied by the governments Urban

Renewal and Integrated and SustainableRural Development Programmes.

1.2.1 THE HIv/AIDS PANDEMIC

HIV/AIDS is a major health problem inSouth Arica. It has signicant implica-tions or housing nance and the economy

in general. Various studies show increases

8 Ministers budget speech 2004/05


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would allow people to easily obtain cheaplie assurance.

A large number o existing mortgage bor-rowers are, in act, insured against a deathattributable to an AIDS-related disease.Banks report that in cases where orphanedchildren are let alone to deal with a debtlet behind by their parents the banksresort to the lie cover, the loan is paidup and the orphans receive a mortgagedhouse. On the issue o a banks lending to

HIV/AIDS victims, banks in South Aricastate that they do not discriminate againstHIV-AIDS victims.

1.2.3 MORTGAGE INSURANCE COvER

Te Ofce o the Banking Adjudicator hascalled on South Aricas banking industry

to undertake a comprehensive audit o allits mortgage loans to ensure that adequateinsurance cover is available to homeown-ers across the broad spectrum o society.

Every bank has a record o approved homeloans. According to Melville10, insufcientattention is being paid to compulsory in-surance requirement, resulting in tragedy,conusion and additional cost to customers.

Recurring problems need to be addressedbeore more pressure is placed on existingstructures.11

Many creditors insist that clients, particu-larly those at the lower end o the market,either cede their existing lie policies ortake out new policies to cover the outstand-

10 Banking adjudicator

11 Cited rom the Press statement released by the BankingAdjudicator Neville Melville

ing amount o their home loans. But theAdjudicator receives several cases where,

ollowing the death o the breadwinner, itis discovered that no lie insurance was inplace, creating an intolerable burden onthe bereaved amily.

Many live under the misconception that apolicy was taken out at the same time asthe bond was registered, only to discoveron the death o the bond holder that thepolicy was never issued. From time to time,

a policy is issued initially, but later lapsesdue to the non-payment o premiums.

Wherever practicable, innocent peopleshould be protected rom this type o emo-tional turmoil. In light o this, the Ofceo the Banking Adjudicator proposed thatall communications to customers regard-ing insurance should clearly indicate i

reerence is made to lie or homeownercover.

A bank employee concerned with mort-gage bonds should be ully trained toensure that insurance cover is issued andthat the customer clearly understands whopays the premium and how.

Te bank should also ensure that the ap-

propriate policy documentation is sent tothe customer and that the customers at-tention is drawn to the provisions relatingto insurance and that they are marked inbold. Particular care should be taken toclariy arrangements or the continuationo an insurance policy once the mortgageis settled.12

12 This inormation was accessed rom the oce o thebanking adjudicator


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2.1 PRE 1922 TO 2004

PRE 1922

Te Housing Act (No 35 o 1920) wasintroduced under the terms o which aCentral Housing Board was establishedto control the housing departments o the

local authorities and to supervise the lend-ing o government unds or the buildingo housing or blacks.

1923 1929: THE NATIvE (URBANAREAS) ACT OF 1923

New legislation called or the establish-ment o three orms o accommodation

hostels, locations and native villages.Local Authorities assumed greater re-sponsibility or housing but the extent ohousing delivery was limited and ell shorto the countrys needs.

1929 1948: INDUSTRIALDEvELOPMENT, URBANIzATION

During 1938 and 1948 there was a largeand rapid inux o people into the urban

areas. Sub-economic loans to local au-thorities or non-white housing or slumclearance resulted in some housing de-velopment. Construction o new housing

declined in 1943 and 1944.

1948 TO 1960: THE NATIONALISTGOvERNMENT & SEPARATEDEvELOPMENT

Te Group Areas Act o 1950 providedor stricter implementation o the policyo segregatation o residential areas. Large-

scale resettlement o Blacks13, Colouredsand Indians under the Group Areas Act

13 During apartheid, the term Black reerred to all thenon-White groups. In post apartheid South Arica theterm meaning o the term Black shits depending on thecontext. In armative action, BEE type o contexts it reersto all non-Whites. In ordinary usage- Whites, Indians andColoureds use it to reer to Aricans. The term Arican inpost-apartheid South Arica has also attained new meaning.Since Mbekis 1999 speech I am an Arican the meaningo Arican has become more ambiguous. However it is

generally used to reer to the people indigenous to thecountry- that is Aricans and not settler communitiessuch as the whites or Indians or even mixed race people

Coloureds.

CHAPTER TWOTHE HISTORy OF HOUSING IN SOUTH AFRICA


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commenced. In 1947, the our roomed,51/6 prototypewas developed and con-

structed at scale in all black townships.

1960 TO 1975: INCREASED SEGREGATION& TIGHTER INFLUx CONTROL

Inux control tightened, homeland devel-opment was undertaken and there wereurther restrictions on movement intowhite areas. Te rights o black people to

reside in urban areas was urther restrictedwith the issue o housing permits allocatedonly to qualied and employed males overthe age o 21.

1975 TO 1977: LEASEHOLDRIGHTS, WIDESPREAD RIOTINGAND HOUSING SHORTAGES

Te strict policies introduced during theprevious phases were reassessed and ad-justed. Te most signicant reversal wasthe re-introduction o leasehold rightsor blacks in these areas. In January 1976a General Minute o the Department oBantu Administration and Developmentwas circulated giving details o a homeownership scheme or blacks. Tis pro-

vided or a title on the basis o a 30-yearlease. Reduced housing development inthe preceding period maniested itsel in acritical housing shortage.

1977 TO 1980: LEGISLATIvE ANDPOLICy CHANGES AND PROTESTSOvER RENT INCREASES

Legislative and policy changes introducedrepresented the acceptance o the perma-nence o urban blacks and a recognitionthat their rights needed to be extended,e.g. introduction o a 99 year leaseholdscheme in April 1978 through the Blacks(Urban Areas) Consolidation AmendmentAct No. 97 o 1978 which made privatesector nance available, provided access to

building society loans & enabled employ-ers to assist black people in acquiring theirown homes.

1980 TO 1994: PRIvATE SECTORDEvELOPMENT AND INCREASEDPOLITICAL STRIFE

During the rst hal o the 1980s the deliv-ery o housing by the private sector aimedat black middle income amilies grewsteadily, but by mid decade people startedto deault on bond repayments as interestrates rose. Sel-help housing emerged as aorm o housing delivery which ocused onowner builders and starter and incremen-tal housing. Te removal o inux controlsaw the rise o inormal settlements and

projects emerged which ocused on up-grading (e.g. site and service) rather thanremoval. Te government also sought torid itsel o the extensive rental housing


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stock through the Sale and ranser oHousing scheme.

1994 TO 2004: NEW DEMOCRATICSOUTH AFRICA

Te Housing White Paper was promul-gated in December 1994 and sets out theramework o the new National HousingPolicy. It was aimed to increase the rateand scale o delivery. Te promulgation

o the Housing Act, No 107 o 1997 (theHousing Act) legislated and extended theprovisions set out in the Housing WhitePaper.14

2.2 GOvERNMENTDEvELOPMENT STRATEGyAND HOUSING FINANCEBEFORE 1994

By the early 1990s the Housing Sector wasragmented, inconsistently unded, andlacked role denition and accountability.Tere were teen departments that dealtwith Housing, namely one general aairsdepartment, three own aairs depart-ments, the department o DevelopmentAid, our provincial authorities, and ten

sel-governing homeland authorities, andmore than 60 national and regional statecorporate institutions. Tese bodies wereimplementing some twenty dierent sub-sidy systems. In addition, South Aricasapartheid history had let the govern-ment with many inappropriate laws and

14 Cited rom the report compiled by Mathew Nell andAssociates dealing with history o black housing in SouthArica

procedures that needed to be repealed oramended.

Te post-apartheid state aced the chal-lenge o phasing out apartheid subsidies,numerous housing departments, laws andpolicies, while at the same time trying toharmonize these into a single nationalhousing programme that reected thenew democratic dispensation.

Lack o capacity: Te legacy o the past

resulted in a depressed housing sector thatlacked capacity both in terms o humanresources and materials to speedily providehousing.

Non-payment o housing loans and serv-ice payment boycotts: Te 1980s werecharacterised by bond, rental and servicepayment boycotts, initiated by a civic

movement and local communities, aimedat undermining the status quo. As a resulto this, many households were reluctantand unable to re-commence paying bonds,rents and services.

Lack o end user nance: For a numbero reasons, including the non-payment ohousing loans, service payment boycottsetc. many lenders are reluctant to lend to

low-income amilies. Many low-incomeamilies are unable to access housing loans,even i they could aord to. Te problem ismade worse by phenomena such as redlin-ing and discrimination, poorly designedcredit instruments, and an unwillingnessby households to save.

Insufcient land: Slow and complex land

identication, and the allocation anddevelopment processes, has resulted in


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insufcient land or housing developmentpurposes.

Inappropriate standards: Inrastructure,service and housing standards are inap-propriate to the needs o the low-incomemarket, resulting in difculties in provid-ing aordable housing.

Dierent requirements between Provinces:Tere are major dierences in the hous-ing needs o the dierent provinces. For

example, in terms o the 1996 census,Gauteng and the Western Cape gener-ally have housing backlogs in urban areas,while in Polokwane and the Eastern Cape,the housing backlogs are generally in ruralareas. Given these dierences, dierentpolicy responses are necessary.

Special needs o women: Te demographic

trends in South Arica demonstrate thatwomen are generally poorer, with lessaccess to resources than other groups. Forexample, the 1996 census showed that26% o emale heads o households earnless than R500 per month, compared with13% o male heads o households. Womenthereore, need special attention in termso housing provision.

Inexperienced housing consumers: Becauseo apartheid many people have neverbought or rented a house, or know anyonewho has. Tere are many inexperiencedhousing consumers. Such consumers otenmake mistakes or all prey to unscrupulousoperators who steal their money.

A culture o building: Many cultural groups

in South Arica have a culture o buildingwhere individuals and households are ableto build their own homes. Tis is a signi-

cant opportunity or poor households tosave money by building their own homes.

Te Housing Sector as a contributor to theeconomy: Te Housing Sector, i eective,can contribute signicantly to the na-tional economy. Te Housing Sector hasthe potential to increase employment andindividual wealth, improve the balanceo payments, reduce ination, encouragehouseholds to save, increase the demandor consumer goods and services, impact

positively on the health o householdsand increase the Gross Domestic Product.Given these actors, investment in thehousing sector has an important contri-bution to make to the overall economicgrowth o South Arica.

2.3 THE RECONSTRUCTIONAND DEvELOPMENTPROGRAMME

Te Reconstruction and DevelopmentProgramme was introduced as an inte-grated, coherent socio-economic policyramework. It sought to mobilise all ourpeople and our countrys resources towardthe nal eradication o apartheid in thehope o building o a democratic, non-ra-

cial and non-sexist uture. It represented avision or the undamental transormationo South Arica. Tat integrated processo transormation was to ensure that thecountry develops strong and stable demo-cratic institutions and practices. It soughtrepresentativeness and equal participationas being part o a ully democratic and non-racial and prosperous society. It looked to


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building a sustainable and environment-riendly society.

Te government, through a process oconsultation with various stakehold-ers and dierent tiers o government,identied the ollowing programmes asbeing the key medium and long-termprogrammes to drive the Reconstructionand Development Programme: meetingbasic needs; urban and rural development;democratisation and institutional reorm;

and economic restructuring.

2.3.1 ADDRESSING SOCIO-ECONOMICIMBALANCES AND UNEvENDISTRIBUTION OF RESOURCES

Te South Arican economy was built onracial divisions. Rural areas were divided

into underdeveloped Bantustans, along-side well-developed, white-owned com-mercial arming areas. owns and citieswere divided into townships or blacksthat had no basic inrastructure but whitesuburbs had good services and inrastruc-ture. Segregation was at every level: ineducation, health, welare, transport andemployment. It let deep scars o inequal-ity and economic inefciency. Violence

through the years has had a devastatingimpact on our society. Te need to restorepeace and a sense o security, has becomeparamount.

A programme was required that wasachievable and sustainable and one whichmet the objectives o reedom, improvedstandards o living and an improved qual-

ity o lie or all South Aricans.

Te Reconstruction and DevelopmentProgramme was designed to be such a

programme. It provided a rameworkwithin which choices could be made, andwithin which needs could be matched byaordability and actors constraining ourability to supply15. Te Reconstructionand Development Programme involvedboth the government and the people inidentiying the countrys needs and theobstacles it aced.16

2.4 THE RECORD OFUNDERSTANDING

Te South Arican government signeda Record o Understanding in October1994 with the Association o MortgageLenders. Te purpose was to increase theavailability o credit, and to undertake a

range o risk alleviation interventions.

Te risk alleviation interventions comprisethe Masakhane Campaign, the MortgageIndemnity Fund, Servcon HousingSolutions and the National Home BuildersRegistration Council. Tese interventionsare briey summarised below.

Te Masakhane Campaign: Tis is a

government driven campaign, initi-ated by the Departments o Housingand Constitutional Development andthe ormer ofce responsible or theReconstruction and DevelopmentProgramme. Although this is a campaign

15 Cited rom the White Paper on Reconstruction andDevelopment Programme, entitled, Government Strategyor Fundamental Transormation, September, 2004

16 Bulk o the inormation is cited rom the RDP policydocument accessible rom the polity website


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initiated by national government it is un-dertaken at all levels o government.

Te campaign seeks to change publicperceptions about and attitudes to therights and responsibilities o individu-als, communities and local government.Specically, it aims to encourage individu-als to pay their rates, service and mortgageor rental payments, contribute towardstheir communities and to eel a sense ocommunity pride.

Te campaign is ongoing and receivesspecial attention annually in the contexto a Masakhane Focus Week.

Te Mortgage Indemnity Fund: TeMortgage Indemnity Fund is a whollygovernment-owned company establishedas a short-term intervention [three year

period] in June 1995. Its purpose was toencourage mortgage lenders to resumelending at sustainable scale in the aord-able housing market, in neglected areas inthe country.

Its main ocus was to provide nancial in-stitutions with indemnity insurance or alimited period against loss in certain areas,i they were unable to repossess properties

due to a breakdown in the due processo law. o achieve this, the MortgageIndemnity Fund provided cover to accred-ited nancial institutions, assessed priori-tised areas and provided accreditation orthese areas and resolved problems in areasthat were not able to be accredited.

Te Mortgage Indemnity Fund was closed

in May 1998 in terms o its original agreedmandate. During its period o operationit was able to generate R10 billion in new

loans. In addition, it played an essentialbridging role between government, nan-

ciers and communities attempting to laythe oundation or a healthy and sustain-able uture relationship17.

2.5 THE EvOLUTION OF THESOUTH AFRICAN HOUSINGFINANCE SySTEM

Te pre-1994 period in housing nance

was marked by a myriad o initiatives thatwere unacceptable to the incoming policymakers because o the dierent ideologicalperspectives. Nonetheless, it set the agendaand scene or what was to come in thelate 1990s both in terms o policy, lend-ing behavior and practices in the housingnance market. Te decade leading up to1994 was marked by widespread resistance

to service and mortgage payments by resi-dents in the black townships.

Te nancial sector, especially retail banks,experienced the brunt (15% deaultsestimated at R10 billion)18 o the rentand mortgage boycotts. During the 1980sthis situation worsened with nancialinstitutions unable eectively to enorcetheir lien over the properties which they

nanced. Consequently, new mortgagelending in township areas came to a halt

17 Inormation drawn rom a number o reports, these includethe department o housing report on housing institutions,President Mandela Speech during his inaugural Address toa joint sitting o parliament, 24 May, 2004 the MIF closurereport, report on the record o understanding, report onNedlac summit agreement on Redlining

18 cited rom a study by A. Pillay on nancial constraints or

low income housing.De Ridder, 1997- Estimated the 15% o the loans were in

deault as apposed to an industry norm o less than 3%or the housing sector.


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in 1994, and no other housing nanceproducts were widely available.

Te mortgage orm o collateral proved tobe o high risk rom two perspectives: rst,the rule o law proved to be ineective, re-sulting in the justice system being unableto evict residents in deault or to allowbanks to process a new mortgage to takeover the loan obligation; and, secondly,the consistent lack o enorcement led tothe deterioration o the physical condition

o the homes to such an extent that theasset value declined19.

Te pressure on the political reormprocess continued and during this earlytransition period leading up to a demo-cratically elected government in 1994

- the South Arican Housing AdvisoryCouncil20, under the chairmanship o

Dr J H de Loor,21

was given a mandatein October 1990 to revise the then policyand ormulate a new housing strategy. Areport, with specic recommendations,was produced in April 1992 and handedover to government. Tis report ormedthe basis or wider consultation withdevelopers, bankers, housing non-govern-ment organizations and activists rom thepolitically-aligned movements.

19 SAHAC was a task group comprising o both public andprivate sector players and other co-opted experts romthe housing, nance, economics and developmentdisciplines.

20 Dr J H de Loor was appointed chairman by to ASHAC bythe then National Party Minister L. Wesssels, responsibleor Local Government, Housing and Public Works.

21 Dr J H de Loor was appointed chairman by to ASHAC bythe then National Party Minister L. Wesssels, responsible

or Local Government, Housing and Public Works.

Te process leading up to the compila-tion o the report was severely criticized

particularly by the non-governmentalsector and activists that represented theanti-apartheid movements, but in analyz-ing later developments it became clearthat some o the recommendations orsubstantive policy directives maniestedthemselves in what we now know as thecurrent housing dispensation.

Te National Housing Forum existed be-

tween 1992 and 1994 and comprised rep-resentatives rom a wide range o politicalparties, housing proessionals, developers,and the nance sector. Tis orum washowever plagued with issues that werepolitically motivated and eventually inter-est and energy was lost in trying to orgea new policy dispensation or low incomehousing that would address the housing

needs o the majority o the population.According to Khan and Ambert (2003)the process ignored the voice o the land-less and homeless in shaping the HousingPolicy. Despite the tenuous debates andminor alterations, the National HousingForum proposal became the new housingpolicy or South Arica when the WhitePaper on housing was published22

Te downward slide in the retail inter-mediation capacity began in 1996 whenCommunity Bank23 closed or business asa result o poor market sentiment by itsshareholders who realized that the bankwas spending higher than normal costsin managing what was perceived to be ahigh risk portolio. Tis phenomenon

22 Cited rom Donaldson and Marais, 2002: 186

23 First attempt to set up a community housing bank thatwas capitalized by the public and private sector.


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continued during the late 1990s into the2000s which saw the loss o other small

banks such as New Republic Bank, FBCFidelity, the purchase by AmalgamatedBanks o South Arica (ABSA) o Unibankand the buyout by Board o Executorso Cashbank. In 2002 Saambou, anothersmall bank, closed its doors to its clients.

Tis trend marked the weakening osecond tier retail institutions that demon-strated the capacity and willingness to deal

with the low-income earner. Large banksargued that the risks o underwriting smallmortgages were increasing and the protmargin on loans less than R80 000 wasmaking banking operations unsustainable.In summary, there was pressure to developa National Housing policy that would ad-dress the backlog and the recognize thatalternative retail lending capacity had to

be created with or without the key banksto make credit available to the majority oSouth Aricans.

During 1993/4, the rustration o notbeing able to secure vacant possession24on mortgaged properties experiencedby the mortgage-lending sector, dur-ing a time when a new government wasinstalled, led to the rapid conclusion o

an agreement between government andthe mortgage lenders. In 1994 a Recordo Understanding25 was signed in terms owhich government accepted responsibilityor the enorceability o law and order byproviding guarantees on historic problemloans. Tese were ring enced into a port-olio to be managed by a joint venture

24 Vacant possession reers to the ability o lenders to perecttheir security over properties nanced without resistancerom the homeowner and pressure groups.

25 Discussed in details below

between government and the lending com-munity. o accomplish this, the company

SERVCON26

was established. Te aim othe Record o Understanding was to allowcommercial banks to be the main deliverychannel through which housing nancecould be accessed and to make additionalcredit available that would be used to aug-ment the new capital subsidy programme.In 1995, the Mortgage Indemnity Fund27

was established to provide insurance coveragainst political risk28 in the areas approved

or lending by the Mortgage IndemnityFund.

2.6 HOUSING FINANCE ANDTHE NEW POLITICALDISPENSATION

Te Reconstruction and Development

Programme29

ormed the basis or thethinking around a new development in-stitution to deal with the issue o povertyand adequate housing opportunities orlow- and moderate-income households.In1994, the state contemplated the estab-lishment o a State Retail Housing Bankbut was convinced in 1996 instead toestablish the National Housing FinanceCorporation to be the key wholesale

lender to the housing nance sector. Testate decided against a retail role - thiswas based on the poor perormance andnancial loss experienced through theSouth Arican Housing rust. Pre 1994,


27 Discussed in details above

28 This is the risk associated with politically motivated actionssuch as violence between opposing political parties orcommunity based actions that were politically motivatedtowards preventing the sheri rom successul evictions.



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the South Arican Housing rust was thestates main vehicle or delivering housing

it was both the developer and provider oend-user nance. Tis was as opposed toa wholesale lender option which providesunding to intermediaries, also know asRetail Finance Institutions who in turnon-lend to end-users. Te South AricanHousing rust incurred huge deaults (25000 mortgage loans in deault).

Te huge bad debts incurred by the South

Arican Housing rust made it unableto rehabilitate and eventually was closeddown by the government.30Bolstering thehousing nance sector, the National UrbanReconstruction and Housing Agency31wasestablished. During the late 1990s threeinternational visits were undertaken byrepresentatives o the newly elected gov-ernment to investigate the relevance o

other housing nance models. O notewas the visit in 1998 by the then Ministero Housing to the United Kingdomwhere the role o the Federation o SocialHousing Institutions impressed the SouthArican delegation. Trough bilateral co-operation with the British government,technical assistance was mobilized to setup the Social Housing Foundation32 inSouth Arica. Te Rural Housing Loan

Fund33 was established in 1996 along thelines o the National Housing FinanceCommittee as a wholesale lender witha specic mandate to serve the housingneeds o rural inhabitants.

30 Cited rom A. Pillay- report on low income housingnance

31 Role and Impact o NURCHA discussed below

32 Discussed below in details


While the housing nance system wasbeing set up, government designed a

unique capital subsidy scheme that was tokick-start the low-income housing market.Between 1995 and 2001, one millionsubsidies were allocated and 90% o thesewere allocated to people earning less thanR1500 per month; 8% to people earningbetween R1501 per month and R2500per month, and the remainder to thoseearning less than R3500 per month34.Te targeting o the subsidies was per-

ect in that the poorest segments o thepopulation beneted the most. However,the consequence was that the subsidiesdistorted the low-income housing marketby creating a concentration o housing inthe price range o R20 000 to R25 000with a typical unit measuring 36m. Tesubsidy scheme led to mass constructiono core Reconstruction and Development

Programme housing in monotonous di-mensions with little choice and dieringquality particularly in the use o cheaperand inerior materials to cut down oncosts. Te beneciaries were not happywith the end product. o deal with theneed to maintain quality the NationalHome Builders Registration Council35was established in 1995.

34 Unblocking Finance For Aordable Housing in South Arica,complied by Council or Scientic and Industrial Research,2000.



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Government, through the subsidy policybegan to increase the supply o housing in

the low-income market to the extent that200 000 units were delivered per annumrom 1996. Other provincially and locallybased state-sponsored institutions alsojoined the nance system to boost the paceo delivery. Te Gauteng Partnership Fundand the Metropolitan Housing Institutionare examples o these delivery additions.


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3.1 THE EvOLUTION OFTHE NEW POLICyENvIRONMENT

Te housing market inherited by the SouthArican government in 1994 had severeabnormalities due to the policies andpolitical turbulence o the pre-democratic

era. Te National Housing Policy that wasormulated and implemented, was strong-ly inuenced by the need to address andnormalise these problems. Consequently,the Policy took advantage o a number oopportunities that also existed within theenvironment. Te aim o the Departmento Housing was to determine, nance,promote, co-ordinate, communicate andmonitor the implementation o policy or

housing and human settlement.

Access to housing and secure accommoda-tion is an integral part o governmentscommitment to reduce poverty and im-prove the quality o peoples lives. Since thelaunch o the White Paper on Housing inDecember 1994, housing in South Aricahas undergone undamental changes.

Between 1994 and June 2004, the HousingProgramme has provided more than 1,6

million housing opportunities to morethan seven million people. During thesame period, a total o 2.4 million subsidieswere approved. Te Minister o Housing,

Dr Lindiwe Nonceba Sisulu,, unveiledthe Comprehensive Housing Plan or theDevelopment o Integrated SustainableHuman Settlements in September 2004.Cabinet approved the Plan as a rameworkor housing programmes over the next veyears. It provided a comprehensive over-sight by government in promoting theresidential property market. Tis includedthe development o low-cost housing, me-

dium-density accommodation and rentalhousing; stronger partnerships with theprivate sector; social inrastructure andamenities.

Te Plan also aimed to change spatial set-tlement patterns, inormed by the needto build multicultural communities in anon-racial society.

According to the Plan, the Governmenttook responsibility or providing the bare

CHAPTER THREEPLAyERS IN HOUSING DELIvERy: GOvERNMENT ANDPUBLIC SECTOR


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minimum or the hard-core poor (incomelevels 0-R1 500) by providing them with

a ull housing subsidy o R28 000. Tepoor (income levels R1 500-R3 500) alsoreceived the ull subsidy but were requiredto provide either a small contributionor sweat equity. A newly created subsidyband in terms o the Plan targets the mid-dle-income level (those earning R3 500 toR7 000 per month) or whom the govern-ment pays a deposit. Te role o the privatesector is enhanced through the collapsing

o subsidy bands, as well as the removal oblockages relating to down payments orindigents and pensioners.

Beneciaries spousal income will also beassessed. A xed rate and other new loanproducts will be developed, includingan option to convert the capital grant,where linked to home ownership or rental,

into an annuity-based grant or benet.Employers will be encouraged to maketheir contribution through employer-as-sisted housing. Barriers to housing tradewill be removed through amendments tothe Housing Act, 1997 [(Act 107 o 1997),to reduce the period during which resaleon the private market is prohibited romeight to ve years. Access to title deeds willbe enhanced through measures that will

stimulate a renewed uptake in the DiscountBenet Scheme, and the establishment oa high-priority ocus on completing theregistration o transer in respect o housesconstructed under the existing HousingProgramme. All programmes are ocusedon ring-encing inormal settlementsand replacing those with more adequateorms o housing. In addition, there will

be greater co-ordination between national,provincial and local governments.

3.1 THE EvOLUTION OF THENEW LEGISLATION AND

POLICy FRAMEWORk

3.1.1 RENTAL HOUSING ACT, 1999

Te Rental Housing Act, 1999 Act 50 o1999, which came into operation on 1August 2001, denes the responsibility ogovernment in respect o the rental housingmarket. It sets out the duties and respon-

sibilities o both landlord and tenant, andprovides or the establishment o rentalhousing tribunals in the provinces, thusallowing or a speedy and cost-eectiveresolution o disputes between landlordsand tenants. Among other things, the Actprescribes that:

Leases may be oral or in writing. enantscan demand a written lease.

Te landlord must give the tenant a writ-ten receipt.

Te landlord may require the tenant topay a deposit beore moving in.

Te balance o the deposit including anyinterest must be reunded to the tenant bythe landlord not later than 21 days aterthe expiration o the lease. In response

to the need or rented housing in metro-politan areas, the Department acilitatedthe development o rented housing stock.Te rented housing policy was nalised atthe end o 2004 and the rented housingsubsidy was expected to be implementedin 2005/06.


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Tree rented housing tribunals were set upin Gauteng, the Western Cape and in the

North West. Other provinces are in theprocess o establishing similar tribunals.Te Act gives these tribunals the powerto make rulings in line with those o aMagistrates Court.

3.1.2 HOME LOAN AND MORTGAGEDISCLOSURE ACT, 200036

Te Home Loan and Mortgage DisclosureAct, 2000 (Act 63 o 2000), providesor the establishment o the Ofce oDisclosure and the monitoring o nan-cial institutions serving the housing-creditneeds o communities. It requires nancialinstitutions to disclose inormation, andidentiy discriminatory lending patterns.Te Act is aimed at promoting equity and

airness in lending and disclosure by nan-cial institutions, and will be implementedas soon as the regulations o the Act havebeen promulgated.

Te Act aims to eradicate discriminationand unair practice by encouraging banksand nancial institutions to grant homeloans to all its clients. It compels banksand nancial institutions to disclose

annual nancial statements so that theirlending practices in respect o home loanscan be monitored. Te Department oHousing also continues to participate inthe deliberations o the Financial ServicesCharter to monitor the extent to which

36 For more details on the Act please see annexure two whichis the copy o the Act

the targets set or the allocation o creditto low-income communities are met.

3.1.3 HOUSING CONSUMER PROTECTIONMEASURES ACT, 1998

In terms o the Housing ConsumerProtection Measures Act, 1998 Act 95o 1998), residential builders have toregister with the National Home-BuildersRegistration Council and are obliged to

enroll all new houses under the NationalHome-Builders Registration CouncilsDeect Warranty Scheme.

Te aim o the Act is to protect home-own-ers rom inerior workmanship. Buildersare responsible or design and materialdeects or three months, roo leaks up toa year, and any structural ailures o houses

up to ve years. National Home-BuildersRegistration Council inspectors may assessworkmanship during and ater the build-ing process. Banks are compelled by lawto insist on home-builder registration andenrolment prior to granting a mortgageloan or nance. All new government-subsidised housing units constructed aspart o approved projects enjoy protectionagainst shoddy workmanship by housing

contractors.

Trough the Act, properties that werebuilt with unding rom the governmentshousing subsidy grant only, now enjoyprotection against structural deects andmust comply with minimum technicalnorms and standards. Previously, theproperties o the poor did not qualiy

or such protection. Te National Home-Builders Registration Council ensures


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0

that registered builders deliver within theminimum housing standards.

3.1.4 PREvENTION OF ILLEGAL EvICTIONAND UNLAWFUL OCCUPATIONOF LAND ACT, 1998

Te Prevention o Illegal Eviction andUnlawul Occupation o Land Act, 1998(Act 19 o 1998), provides or the prohi-bition o unlawul eviction and sets out

detailed procedures or the eviction ounlawul occupiers.

It prohibits the receipt o payment as a eeor arranging the occupation o land with-out the consent o the owner, and repealsobsolete laws relating to illegal squatting.

Te Act provides a process or air eviction

o unlawul occupiers, and distinguishesbetween occupiers who have been residingon land or less than six months and thosewho have been residing on land or morethan six months.

3.1.5 COMMUNITy REINvESTMENT BILL37

Te Community Reinvestment Bill which

was published or comment in 2003, hasbeen put on hold pending the outcome oaordable housing lending targets identi-ed in the Financial Services Charter. TeDepartment o Housing will lead the gov-ernments response to the opportunitiespresented by the Charter. A ramework isexpected to be developed whereby aord-able housing nance deals and partnerships

between the nance and public sectors can

37 See annexure three on the details o the Bill

be structured. Non-housing urban-devel-opment opportunities presented by the

Charter will also be explored in an eort toincrease private investment in communityacilities in residential neighbourhoods.

Te Community Reinvestment Bill is asequel to the Home Loan and MortgageDisclosure Act. 2000 and provides ormechanisms that will ensure more homeloans are allocated to low- and medium-in-come borrowers. However, the Bill canno

compel housing-nance institutions totake risks in meeting their community-reinvestment obligations.

3.1.6 SOCIAL HOUSING POLICy

Te primary housing policy developmentsin 2003/04 included a new social housing

policy. Te policy creates an enabling en-vironment or both private and public-sec-tor investments in social housing projects.Te policy, and associated legislation, sup-ports urban regeneration, integration anddensication initiatives, which promoteurban efciency. On 15 August 2004,Minister Sisulu and the European UnionAmbassador, Mr Michael Lake, launched aR160-million Social Housing Programme

in Pretoria.

Rented housing is central to the Departmento Housings strategy in providing alterna-tive and cheap accommodation to thosewho work in urban areas. Te Programmeserves as a vehicle or providing housing


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under dierent tenure options like co-op-erative housing and instalment sales.

3.1.7 PUBLIC-SECTOR HOSTELREDEvELOPMENT PROGRAMME

Te Department is revising the hostelspolicy to replace it with a policy thatwill enable the creation o humane livingconditions, and provide aordable andsustainable housing on either a rental or

home-ownership basis. Several pilot rede-velopment projects have been launched.

Te Department has also prepared a seto technical specications or the upgrad-ing or provision o new services, and theupgrading (redevelopment) o hostelbuildings. Amendments to the imple-mentation guidelines, which will direct

the redevelopment o the Public-SectorHostels Redevelopment Programme, wasexpected to be nalised by the end o the2004/05 nancial year.

3.2 FISCAL: GOvERNMENTExPENDITURE

Te Department received R4.8 billion in

2004/05 to nance national and provin-cial housing programmes. Te allocationis made annually based on a ormula thattakes into account the backlog38 in eachprovince, the number o households inthe various income categories o the sub-sidy scheme, the ratio between urban and

38 Please reer to annexure 1 or breakdown o backlog andhousing delivery per province

rural housing, and the perormance o therelevant provincial government.

otal departmental expenditure wasexpected to increase rom R3.3 billion in2000/01 to R5.5 billion in 2006/07. TePeoples Housing Process recognises theeorts and initiatives o those who preerto build their own houses and are pre-pared to commit their resources, skills andenergies to this task. It provides technical,nancial and other support to these people.

Funding is administered through the pro-vincial Housing departments, while thePeoples Housing Partnership rust helpsbuild the capacity to speed up delivery.

3.2.1 CAPACITy-BUILDING STRATEGy

One o the major constraints in housing

delivery is the lack o capacity: lackingan efcient workorce and requiring theinstallation o appropriate technology,equipment and systems or monitoring,evaluation and reporting purposes. TeDepartment continues to provide sup-port and assistance to provinces to ensureeective and efcient implementationo the National Housing Programme.Te strategy and guidelines or housing

capacity-building, as well as guidelinesor provincial housing-capacity businessplans were developed. National housingcode workshops were held at both nationaland provincial level, aimed at capacitatinginternal and provincial ofcials, includingmunicipal ofcials and councilors. It alsoaimed to increase knowledge on housingpolicies, programmes and legislation. In

April 2004, the Department announcedthe amended version o the National


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Housing Programme dealing with housingassistance in emergency circumstances.

Te National Housing Programme orHousing Assistance in Emergency HousingCircumstances was instituted in terms othe Housing Act, 1997. Te amendmentrelates to the provision o the Constitutionthat everyone has the right to have accessto adequate housing, and that the Statemust take reasonable legislative measureswithin its available resources to achieve the

progressive realisation o this right.

Te main objective o this Programme isto provide temporary housing relie orpeople in urban and rural areas who ndthemselves in emergency situations:whentheir existing shelter has been destroyed ordamaged; or their situation poses an imme-diate threat to their lie, health and saety;

or they have been evicted or ace the threato eviction. Te assistance involves priori-tising unds rom the provincial housingallocations to municipalities to accelerateland development, and the provision obasic municipal engineering services andtemporary shelter.

3.2.2 NATIONAL HOUSING

SUBSIDy PROGRAMME

Individual ownership subsidies are al-located to help beneciaries acquireownership o xed residential property(housing opportunities) or the rst time.New housing-subsidy programmes arebeing developed and certain existing pro-grammes have been enhanced, including

rental and social-housing subsidies. Tehousing-subsidy programmes, includingproject-linked subsidies, are being revised

to introduce a procurement-compliantregime, consolidation subsidies, Peoples

Housing Process, rural subsidies and insti-tutional subsidies.

Te Department increased housing sub-sidies by up to 11,68% with eect romApril 2004. Te subsidy or beneciariesearning between zero to R1 500 roseby R2 700, rom R23 100 to R25 800.Beneciaries earning between R1 501and R2 500 received a R1 500-subsidy

increase, rom R14 200 to R15 700. Tesubsidy or beneciaries earning betweenR2 501 and R3 500 rose rom R7 800 toR8 600. Subsidies or the indigent, includ-ing the aged, people with disabilities andthe health-stricken, were increased romR22 800 to R25 580. Te consolidationsubsidy or beneciaries earning R1 500was increased rom R10 900 to R12 521,

and or indigents rom R13 400 to R15000.

Te Department has designed a housingscheme that eectively caters or peoplewith disabilities. People with visual im-pairment and other disabilities will get anadditional amount to the normal subsidyto make their homes more accessible andcomortable, in accordance with their

physical needs. In February 2004, theDepartment approved an extension to theexisting housing subsidies or people withdisabilities.

Project-linked subsidiesTis housing subsidy mechanism enablesa qualiying household to access a com-plete residential unit, which is developed

within an approved project-linked hous-


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ing subsidy project or ownership by thebeneciary.

Individual subsidiesAn individual subsidy provides qualiy-ing beneciaries with access to housingsubsidies to acquire ownership o servicedstands. It also allows the beneciary toenter into house-building contracts, orto purchase existing, improved residentialproperty that is not part o approvedhousing-subsidy projects.

Tis subsidy helps qualiying and non-qualiying beneciaries get access to creditwho wish to increase their subsidies.,

Consolidation subsidiesTis subsidy mechanism aords ormerbeneciaries o serviced stands, nancedby the previous housing dispensation

(including the Independent Developmentrusts site and service schemes), the op-portunity to acquire homes.

Institutional subsidiesTe institutional subsidy is available toqualiying institutions to enable them tocreate aordable housing stock or personswho qualiy or housing subsidies.

Te subsidy is paid to approved institu-tions to provide subsidised housing ondeed o sale, rental or rent-to-buy options,on condition that the beneciaries maynot be compelled to pay the ull purchaseprice and take transer within the rst ouryears o receiving the subsidy.

Institutions must also invest capital romtheir own resources in the project.

Relocation assistanceRelocation assistance provides an alterna-tive option to deaulting borrowers threemonths in arrears on 31 August 1997, andwhere the option o rehabilitating thesemortgage loans was not aordable. Tisalternative provides an opportunity to ob-tain aordable housing with the assistanceo the housing subsidy. A person who is

eligible or relocation assistance is requiredto enter into a relocation agreement, so asto relocate to aordable housing.

Discount Benet SchemeTe Discount Benet Scheme promoteshome ownership among tenants o State-nanced rental stock, including ormalhousing and serviced sites. In terms o

this Scheme, tenants receive a maximumdiscount o up to R7 500 on the sellingprice o the property.

Where the discount amount equals orexceeds the purchase price or loan balance,the property is transerred ree o anyurther capital charges. Rural subsidies:inormal land rights. Tis housing subsidyis available to beneciaries who enjoy only

unctional tenure rights to the land theyoccupy. Tis land belongs to the State andis governed by traditional authorities. Tesubsidies are only available on a projectbasis and beneciaries are supported byagents. Beneciaries also have the rightto decide on how to use their subsidies


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either or service provision, the building ohouses or a combination o the two.

In a NutshellSouth Arican housing policy is strong in itscommitment to achieve a holistic concepto adequate housing by supporting citi-zens in achieving this vision incrementally.o ensure eective delivery and scaling upo housing nance mechanism, as well asobtaining easy access to credit, the govern-ment introduced signicant interventions.

O note is the our key interventions:

Te Breaking New GroundHousing Strategy (2005). Testrategy collapses the subsidysystem and creates a three-tiercategory o income groups or bet-ter targeting. In the categorisation,the hard-core poor (income levels

0 - R1,500) receive the ull housingsubsidy o R28.00039. Te poor(income levels R1,500 - R3,500)also receive the ull subsidy. Anew subsidy band was created oraordable housing targeting themiddle-income level (those earningR3,500 to R 7.000 pm), to whomthe government pays a deposit.

Te promulgation o the HomeLoan and Mortgage DisclosureAct (2000). Te Act aims atpromoting air lending practicesthat require disclosure by nancialinstitutions o inormationregarding the provision o homeloans and disclosure o reasons

39 Please reer to annexure on RDP houses on what subsidydelivers in terms o end product, size and quality o theunit

i.

ii.

or not advancing a home loan ormortgage to low income earners.

Te Community ReinvestmentBill40 (2003). Te Bill compels allnancial institutions to engage inthe provision o mortgage nanceto make housing nance availableto the lower end o the market.

Te New National CreditBill (2004). Te Act protectsconsumers rom deceptive andunair conduct by credit provid-ers and credit bureaus. Further,it tries to educate consumersabout credit and their rights.

3.3 THE NATIONAL HOUSINGINSTITUTIONS

Te Department o Housings supportinstitutions play an important role inenhancing the norms and standards ohousing, as well as making housing nancemore accessible to all South Aricans.

Te institutions are the National HomeBuilders Registration Council , theNational Housing Finance Corporation, the National Urban Reconstruction

and Housing Agency ,Servcon HousingSolutions, Tubelisha Homes, the SocialHousing Foundation, the Peoples HousingProcess and the Rural Housing LoanFund.

40 The copy o the Bill is attached in the annexure

iii.

iv.


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3.3.1 NATIONAL HOME-BUILDERSREGISTRATION COUNCIL

Te National Home Builders RegistrationCouncil was established in terms o theHousing Consumer Protection MeasuresAct, 1998. Te Council protects theinterests o consumers and regulatesthe home-building industry. Beore thecommencement o the Act, the NationalHome Builders Registration Council wasestablished as a Section 21 company. Itsmain objective was to promote the com-

mon interests o persons occupied in thebusiness or proession o homebuilding,through the regulation o the home build-ing industry. In August 1995, the NationalHome Builders Registration Council(Pty) Ltd also established the NationalHome-Builders Registration CouncilFund (Pty) Ltd. Te main objective o thiscompany was to establish an indemnity

und to promote the interests o contac-tors, by making unds available throughthe National Home Builders RegistrationCouncil on an ex gratia basis to nancethe rectication o deects in housingunits in circumstances where contractorswere either unable or not liable to do so.

On 26 March 2001, a statutory councilwas established in accordance with the

provisions o the Housing ConsumerProtection Measures Act, 1998. Te twoormer Section 21 companies were conse-quently dissolved and all their assets andliabilities were transerred to the statutorycouncil.

More and more members o the publicwant to purchase homes that have been

enrolled with the National Home BuildersRegistration Council. Its main source orevenue is the enrolment o new homes.

In 2003/04, the National Home BuildersRegistration Council registered some 19

448 home builders and enrolled 281 462homes. It also conducted 470 921 inspec-tions during that period and received 16288 complaints.

3.3.2 NATIONAL HOUSINGFINANCE CORPORATION

Te National Housing Finance Corporation

was set up by the Department o Housingin 1996 with a mandate to ensure thatevery South Arican, who had a regularsource o income was able to gain accessto nance, and to acquire and improve ahome o his or her own. Te institutionoperates under specic exemption romthe Banks Act (Act 94 o 1990) and re-ceives all o its primary unding capital o

R880 million rom government. As oneo the countrys premier development--nance institutions, the Corporation actsas a wholesale under and risk-manager,acilitating access to housing nance orlow- and moderate-income communities.

Te mission o the National HousingFinance Corporation is to ensure:

Development and appropriateunding o institutions, providingaordable housing nance atretail level. Such nance is aimedat the lowest possible incomelevels able to aord credit on asustainable and commercial basis.

Development and appropriateunding o institutions oering

a variety o tenure options orresidential purposes, in the

i.

ii.


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under- and unserviced seg-ments o the housing market.

Sustained and growing mobilisationo savings in the housing process,through appropriate intermediaries.Te National Housing FinanceCorporation Business Plan statesthat it aims to create housingopportunities or low- andmoderate-income amilies by:

Funding or underwritingthe unding o intermediar-ies and institutions;

o promote broader access tohousing, building adequateand sustainable capacity withinthe organisations it unds;

Partnering organisations andinstitutions to deliver innovativehousing-nance solutions. BetweenMay 1996 and February 2004,the National Housing FinanceCorporation approved acilitiestotalling more than R1.6 billion,and disbursed R1.5 billion.

In 2003/04, 55 loans to the value o morethan R632 million were disbursed to

nance 220 602 houses. Trough its lend-ing activities, more than 46 146 new hous-ing units had been built by February 2004.Over 171 510 loans had been originatedand acilitated, and a total o 62 new andemerging institutions had been supported.More than 1.1 million lives had beenimproved through the National HousingFinance Corporation s unding activities.

iii.

iv.

v.

vi.

3.3.3 NATIONAL URBANRECONSTRUCTION ANDHOUSING AGENCy

National Urban Reconstruction andHousing Agency was ormed as a part-nership between the South AricanGovernment and the Open SocietyInstitute o New York, United States oAmerica , in May 1995 to arrange nanceor housing.

Over the years, National Urban

Reconstruction and Housing Agencyhas raised additional nancing throughSwedish, Norwegian and US agencies, andthrough the Futuregrowth Fund, OverseasPrivate Investors Corporation and RandMerchant Bank. It is a tax-exempt, non-prot-making company. In 2004/05,government awarded the National UrbanReconstruction and Housing Agency a R3

034 000 grant. Operational expenses areunded by an initial allocation rom gov-ernment and a grant rom the OSI. Since1995, National Urban Reconstruction andHousing Agency has expanded its missionto expedite the:

Construction o housing or low-in-come households

Creation o viable communitiesthrough nancing the constructiono housing-related inrastructureand community acilities.

By the end o the 2003/04 nancial year,National Urban Reconstruction andHousing Agency had received claimstotalling R4.8 million or 55 housingprojects. Since 1995, National Urban

Reconstruction and Housing Agencyhas supported the building o 135 421

i.

ii.


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houses, o which 13 827 were built during2003/04.

3.3 THE NATIONALPROGRAMMES

National Urban Reconstruction andHousing Agency uses a variety o interven-tions to arrange and package nance orthose delivering housing to low-incomehouseholds, inrastructure, and commu-

nity acilities:

Bridging-nance loans orsmall contractors: NationalUrban Reconstruction andHousing Agency lends moneyto small/emerging contractorsbuilding subsidy housing.

o assist contractors and develop-

ers who are unable to accessbridging nance rom a bank,National Urban Reconstructionand Housing Agency has enteredinto agreements with nancialintermediaries that have speci-cally tailored products to ensurethe appropriate ow o nanceto projects. Applicants requiring

this orm o unding are nor-mally contractors who also requirenancial management support.

Bridging-nance loans orestablished contractors: NationalUrban Reconstruction andHousing Agency lends directly toestablished developers and contrac-tors developing subsidy housing,credit-linked housing in theR50 000 to R180 000 selling

i.

ii.

iii.

price range, inrastructure andcommunity acilities. Establishedcontractors are required to providea minimum o 30% o the projectbridging nance required upront.

Financing or rental housing:National Urban Reconstruction andHousing Agency provides nanceand guarantees or the construc-tion and upgrading o rental stockor the aordable housing market

sector. Tese acilities are providedsubject to the specic requirementso the negotiated package. NationalSavings Scheme: Mandated bygovernment, National UrbanReconstruction and Housing Agencylaunched the National SavingsScheme in 2001. As a result o theamendment to the Governments

housing policy in April 2003, theScheme was substantially revised. Insupport o the amended policy, theNational Urban Reconstruction andHousing Agency now works withprovincial and local authorities toassist beneciaries to save towardsany contributions they are requiredto make to their subsidised housing.

iv.


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3.3.4 THE MORTGAGE INDEMNITy FUND

Te Mortgage Indemnity Fund was a gov-ernment owned company that was ormedor a three year period as a result o thesigning o the Record o Understandingbetween the Department o Housing andthe Association o Mortgage Lenders. TeRecord o Understanding aimed to a-cilitate a resumption o lending activitiesby banks in areas that had experienced awithdrawal o housing investment, due to

a breakdown in the due process o law andthe non-payment or mortgage loans. TeMortgage Indemnity Fund commencedoperations in June 1995 and ceased tooperate in May 1998. Mandated to under-take a short-term mechanism, to encour-age mortgage lenders to resume lending atscale, in both the primary and secondaryaordable housing market, in areas o

the country where mortgage lending wasdisrupted due to past circumstances.

Te key areas o ocus were to :

Indemniy accredited nancialinstitutions against loss, wherethey are not able to repossessproperties due to a breakdownin due process o law.

Become an interace betweengovernment, the private sectorand communities so as to establisha sound working relationshipbetween these stakeholders. Assistnancial institutions to normalisetheir historical non-perormingloans and properties in posses-sion. Develop a rational basis or

i.

ii.

assessing lending risk in areaso the country where lending

Trough the Mortgage Indemnity Fundindemnity was provided to nancial in-stitutions or the three-year period as wasagreed in the Record o Understanding. Asa result o the provision o this indemnitythere has been a signicant increase inlending in ormally red lined areas. Fiteennancial institutions were indemnied,and indemnity cover was provided in 543

areas nation-wide. Tis resulted in 140000 loans being granted with a value oR10 billion. O these loans, 73 000 witha value o R4.1 billion occurred in thelower segment o the housing market. TeMortgage Indemnity Fund, as a short-term intervention, laid the oundationor uture lending and normality in thelow-income housing market. Te process

succeeded in unblocking vast amounts onew nance in marginalised areas and inobtaining clarity on key problems acingthe housing sector.

A view rom a ormer senior ofcial,Tloriso Telejane, suggests that the com-pany did well under the circumstances butwas quick to say that or any housing in-stitution to achieve greater results it must

operate on a long-term mandate.

3.3.5 SERvCON HOUSING SOLUTIONS

Servcon was established as a 50-50 jointventure between the Department oHousing (representing government) andthe Council o South Arican Banks in

1994. Servcon was mandated to provideexclusive management services in respecto the designated portolio, comprising


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33 306 properties in possession , and non-perorming loans with a value o R1.277

billion, or a period o eight years rom 1April 1998 to 31 March 2006. Servconsmission is to normalise the lending processby managing non-perorming loans andproperties in possession in areas wherethe normal legal process has broken down,in terms o the normalisation programmeagreed to by the Department and theCouncil o South Arican Banks.

Servcon has our programmes, namely:

Te re-purchase/reschedulingprogramme that assists those whocan aord an existing property byproviding a mechanism to reas-sess the property and arrive at areasonable buy-back or new-debtamount the subsidised rental

programme that gives the occupanttime to adjust to paying againater a period o non-payment

Rightsizing, which is designed orthe owner/ ex-owner who cannotaord a property or the rentaloption, by oering assistance toprocure and nance, in whole or inpart, an alternative aordable house

special assistance, which is providedto the aged and disabled, such asproviding relocation assistance insitu, i.e. without having to relocate.

Servcon disposed o 19 783 propertiesduring 2003/04. It receives undingrom the Department on a quarterlybasis to cover 50% o its operating costs

and 50% o interest on the value o theundischarged guarantee to the banks. In

i.

ii.

2004/05, Servcon received a grant o R37166 000.

3.3.6 THUBELISHA HOMES

Tubelisha Homes is a Section 21 compa-ny established in 1998 by the Departmento Housing and Servcon. It commencedoperations in 1999. Tubelisha Homesmandate is to procure or develop housingstock appropriate or rightsizing purposes.

o achieve this, Tubelisha Homes has to:determine the number, nature and loca-tion o the required housing stock; secureunding to nance operations; procureor develop and nance relevant housingstock; evaluate the clients or capital subsi-dies; sell houses to approved clients undercost-eective and appropriate terms;

communicate its role eectively to keystakeholders on an ongoing basis andobtain their support or the programmes.Rightsizing is a process initiated by theRecord o Understanding signed by cer-tain banks and the government, wherebyoccupants o bank.

Tese clients are permitted to occupy theirexisting homes temporarily while paying

a predetermined and aordable rental toServcon. Relocation assistance equiva-lent to the capital subsidy is available toTubelisha via the provincial housingdepartments, to procure new homes orclients. Tubelisha was initially capitalisedwith a R50-million grant rom governmentto assist with bridging nance and work-ing capital. A division o the FirstRand

Group, which provides a treasury unctionor Tubelisha, it manages this und. Inaddition to ensuring the eective imple-


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0

mentation o the rightsizing programme,Tubelishas other core strategic objectives

are to:

(i) increase the utilisation o emale con-tractors on their projects; (ii) integrate theaged and clients with disabilities rom themunicipal waiting lists into their projects;(iii) toacilitate the delivery o housesthrough a managed Peoples HousingProcess; (iv) implement an accreditedemerging-contractor development pro-

gramme; (v) integrate waiting-list clientsinto rightsizing projects.

Tubelisha operates in six o South Aricasnine provinces. During 2003/04, some 11713 stands were secured, with 5 405 houseshanded over to clients. Between 1999 andMarch 2004, some 12 064 stands weresecured, 9 777 subsidy applications com-

pleted, and 7 341 subsidies approved.

3.3.7 SOCIAL HOUSING FOUNDATION

Te Social Housing Foundation wasestablished as a Section 21 company bythe Department o Housing in 1997. It ismandated by the Department to developand build capacity or social housing insti-

tutions and to develop a policy rameworkor the sector.

Te strategic objectives o the organisation,based on its mandate, mission and vision,are:

o provide social-housing-sectorstrategic inormation;

o mobilise resources or thesocial housing sector;

i.

ii.

o acilitate the capacitationo sectoral participants;

o promote the social housingsector(v) o acilitate sectoralstakeholder alignment;

o achieve Social HousingFoundation business-service excellence.

Te Social Housing Foundation andthe social housing sector have shown

signicant growth and development inrecent years. By November 2003, therewere 64 Social Housing Institutions inSouth Arica and 33 500 housing unitshad been provided. Te most signicantagreement relating to social housing wasthat between the European Commissionand the South Arican government. TeEuropean Commission has pledged 20

million Euros (about R200 million) orsocial housing over the next ve years.Te European Commission programmehas been strengthened, with a consider-able amount o work conducted aroundbuilding internal sta capacity, systems,procedures and manuals o the SocialHousing Forum. Tree Social HousingInstitutions were successul in applying orgrant unding or capacity-building and

development, while plans or a number oadditional institutions are in the pipeline.In 2004/05, the government awarded theSocial Housing Foundation a grant o R15347 000.

3.3.8 PEOPLES HOUSING PROCESS

Te National Housing Policy: Supportingthe Peoples Housing Process was adoptedby the Minister o Housing in 1998. Te

iii.

iv.

v.


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Policy ocuses on poor amilies in bothurban and rural areas, using capital sub-

sidies to allow people to build their ownhomes. It also assists people in obtainingaccess to technical, nancial, logisticaland administrative support to build theirown homes, on either an individual or acollective basis.

3.3.9 PEOPLES HOUSINGPARTNERSHIP TRUST

Te broad mandate o the PeoplesHousing Partnership rust is aligned tothe National Housing Policy:

o support the Peoples HousingProcess, which denes the PeoplesHousing Partnership rust, itsmandate being to engage withnational, provincial and localgovernments and civil society tomeaningully participate and sup-port the Peoples Housing Process;

o create adequate capacity orthe Peoples Housing Process,the Department established thePeoples Housing Partnershiprust in June 1997 to implement

the Capacitation Programme tosupport the Peoples HousingProcess. Te main objective o theProgramme is to develop capacityat all levels o government, and innon-governmental organisations,community-based organisationsand communities to supportthe Peoples Housing Process.

Te Peoples Housing Partnership rusthas ve programmes: Communication;

i.

ii.

raining; Research and Development;echnical Advisory Services; and

Corporate Services. Te Peoples HousingPartnership rust is unded by the UnitedNations Development Programme, theUnited Nations Centre or HumanSettlement and the US Agency orInternational Development. Governmentassists the Peoples Housing Process byway o subsidies, acilitation grants andhousing-support unding.

3.3.10 RURAL HOUSING LOAN FUND

Te Rural Housing Loan Funds mainbusiness, as a wholesale lending institu-tion, is to raise money and lend it, and toenable retail institutions to provide loansto low-income earners to nance hous-ing in rural areas. In 2003/04, the Rural

Housing Loan Fund unded more than54 000 home improvements, mostly builtby home owners or small local builders. Itcommitted over R272 million to 22 retaillenders and disbursed over R252 millionto lenders. Te Rural Housing Strategyto support rural housing, dealing with acomprehensive range o housing-relatedissues, such as tenure, livelihood strategiesand broader socio-economic issues, was

expected to be developed in 2004 andimplemented in April 2005.

By August 2004, a arm-worker andarm-dweller policy was being developedto respond to the housing needs o ruralcommunities. Tis included policyrecommendations that would considerthe economic, social and institutional

sustainability o arm-worker settlements;the required institutional ramework; theroles and responsibilities o implementing


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agencies; technical norms and standards;tenure security; suitable subsidy mecha-

nisms; and legislative amendments.

3.3.11 THE URBAN RENEWAL

Te Special Integrated Presidential Projector Urban Renewal was identied as oneo the rst Presidential Lead projects. Teaim o the Project was to kick-start devel-opment in major urban areas, ocusing

on violence-torn communities and thosein crisis. It was developed to ensure anintegrated approach to the provision oinrastructure, housing, community andrecreation acilities, and job opportunities.It aimed to transorm previously disadvan-taged communities and create sustainableand habitable living environments.

In addition, the Project has been viewedas an ideal opportunity to promote thebusiness-planning concept and to giveprovincial governments the opportunityto improve co-ordination.

3.3. 12 URBAN UPGRADING ANDDEvELOPMENT PROGRAMME

Te Urban Upgrading and DevelopmentProgramme is a joint bilateral undertak-ing between South Arica and Germany,established in 1994 between the nationaldepartment o Housing and Germanechnical Co-operation. Te departmentis playing a key acilitation and co-ordi-nating role in the implementation o theProgramme in the Free State and Eastern

Cape. Assistance to the two provinces andhousing institutions has involved: (i) sup-port to the Masilonyana Municipality in

the Free State in bridging the buer zoneby promoting the integration o the Masilo

township with the ormer town throughterritorial marketing; (ii) support or theimplementation o the Peoples HousingProcess projects in Mount Fletcher,Elliotdale and arkastad in the EasternCape; (iii) support or the national reviewo the Peoples Housing Process by thePeoples Housing Partnership rust; (iv)the piloting o a municipal housing-sectorplan as part o the Integrated Development

Plan o the local municipality o Mohokarein the Free State.

By March 2004, the Urban Upgradingand Development Programme assistedroughly 2 500 household beneciarieswith housing subsidies, through integratedplanning, sel-help and management oconstruction processes. Tis helped these

homeowners too gain a oothold in theurban economy by owning a transer-able asset. Te programme led to theast-tracking o the delivery o roughly 18000 housing units within the rameworko the Housing Support Programme. Teprogramme took into account the needto educate thousands o prospective orexisting house owners about their rightsand responsibilities as housing beneciar-

ies, and in the process empowering 550household beneciaries to grow the valueo their national assets by investing morethan R3 million in the upgrading andimprovement o their houses; to empowerthousands o community members to bet-ter understand the housing policy so thatthey can articulate their demands, makeinormed choices and be part o a decision-

making process about delivery. Oten thisled to many o the programmes sta andcommunity members improving their


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understanding o urban service-deliverymarkets and lling up some o the delivery

gaps with rare skills.

3.3 13 SETTLEMENT POLICy ANDURBAN DEvELOPMENT

In June 1996, South Arica made a

un housing finance systems in south africa

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