by Katherine Graham


Closing the gap

Building a wall
Although serious challenges remain in the gap housing market, there are profits to be made by shrewd investors who are willing to embrace risk and seize opportunities for affordable housing.

First-time property buyers who earn too much to apply for free government houses, yet too little to apply for bank loans, have for years been caught in a difficult predicament. This is the proverbial gap that gave rise to the expression ‘gap housing’, also known as affordable housing, which services households whose income ranges from R3 500 to R15 000 per month. 

In President Jacob Zuma’s State of the Nation Address this year, he announced an extended Finance-Linked Individual Subsidy Programme (FLISP) as of April this year. The key principles of this policy include income eligibility, the property’s value (R300 000 or less) and the value of the subsidy.

The subsidy amount is inversely proportional to the household’s income. For example, a household earning R3 501 per month will qualify for a subsidy of R87 000, while a household earning R15 000 a month will qualify for a substantially lower subsidy of R10 000.

In the short term, FLISP subsidies are only available for new housing delivered through pilot projects approved by the National Housing Finance Corporation, one in each of the nine provinces. In the longer term, however, it is hoped that the policy will apply to affordable housing in the resale market as well.
Joining hands with the private sector

Kutoane Kutoane, chief executive officer of the Gauteng Partnership Fund (GPF), says the government cannot carry the burden of affordable housing alone and that assistance from the corporate sector is a prerequisite for future growth.

To date, the GPF – established by the Gauteng administration in 2002 – has funded about 18 000 units throughout the province, worth an estimated R2-billion.

Kutoane comments, “The state’s financial resources are limited, so private sector participation is a key ingredient. Also, the potential returns in the affordable housing rental market in particular are higher in comparison to conventional commercial property markets, provided you are able to manage your risk – making this an attractive investment option.”

In terms of the commitment by the government and financial institutions to affordable housing, the scorecard given by commentators is mixed.

James Howard, portfolio manager at Futuregrowth Asset Management, is upbeat: “It’s a moving target, but we are now in a far better space in terms of the government’s delivery as well as the part played by funds such as the Futuregrowth SRI [social responsible investing] debt and equity funds and the Old Mutual Housing Impact Fund. Billions of rands raised and applied through initiatives supported and led by these funds have made a noticeable difference in terms of supply in the affordable housing market.”

Others, such as Peter Grobbelaar of property development company Visual International, are unimpressed. “In the Western Cape, specifically Cape Town, the housing backlog has grown year on year. Our perception is that the lists of applicants held by the various authorities – the City of Cape Town and the Western Cape Department of Human Settlements – are inaccurate, outdated and incomplete due to the passing of time and migration.”

He is critical of banks’ reluctance to service this end of the market. “The current anomaly is that although most of the banks, if not all, have established specialist divisions to operate in the affordable housing space with the express purpose of addressing this imbalance, they are not granting loans as one is led to believe.
“Unless the banks find innovative ways of dealing with the reasons for not granting loans by overcoming the hurdles of serviceability, large-scale affordable housing delivery cannot be achieved.”

John Lamb, marketing manager of Duro Pressings, a large manufacturer of steel windows and doors, maintains that payment to contractors remains a huge problem. He adds that quality checks and specification of quality products are lacking in the affordable housing segment, as the main driver is cost.
“I think that there are many options with regard to eco-housing, for example. However, cost is a primary factor in the delivery of houses en masse, and many supplier do not yet have the economies of scale to achieve the prices that are needed to compete in this market.”

Grobbelaar, who has recently been involved in the Stellendale Village development near Stellenbosch which mixes gap housing with units marketed at middle-income earners, believes the future of the sector lies in sustainable, unsegregated communities. “The most successful case studies are where all income levels are seamlessly integrated,” he asserts. “Traditional thinking, traditional town planning, traditional densities and traditional materials all have to come under the spotlight and undergo serious and meaningful review.”

Katherine Graham

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