Real Estate: Gap housing

Gap housing market needs major attention

Gap housing market needs major attention, says deputy finance minister
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Despite government making good progress with a number of initiatives to enable greater access to affordable housing opportunities, much work remains, says deputy minister of finance Musa Nene. And, he says, the private sector can and should play a significant role in making such opportunities a reality.

The plight of the 'gap market' was given prominence by President Jacob Zuma in his State of the Nation Address in 2012 and again this year. The gap – or affordable market – comprises people who earn too much to qualify for government-subsidised housing and but not enough for homes in the traditional private market. Additionally, there is a major lack of available stock in this sector.

Delivering the keynote address at the recent investor conference of global private equity funder International Housing Solutions (IHS) in Johannesburg, Nene pointed out that the transformation of human settlements and spatial development – to create the conditions for more humane and environmentally sustainable living and working environments – was a key component of South Africa’s growth and employment-focused National Development Plan (NDP). Urgently addressing the needs of the gap market was, in turn, a central part of this, he said.

As a pioneer of affordable housing development in southern Africa, IHS has thus far successfully placed R1.9-billion in equity funding enabling the construction of 27 000 affordable housing units in South Africa. The company’s latest conference was attended by major local and global investors drawn to the potential of the sector.

Nene sketched the ongoing fragility of the global economy and its growth prospects. He again pointed out that South Africa is not immune to the poor growth outlook and referred to the country’s revised growth outlook. In his latest budget speech, finance minister Pravin Gordhan said gross domestic product growth was expected to be 2.7% in 2013, rising to 3.8% in 2015.

“But we require much faster and sustained growth to address our socio-economic challenges,” said Nene. The government’s plan to improve GDP growth, create jobs and eradicate poverty is captured in the NDP, of which the transformation of human settlements is a key element, he added.

“Although our budget forecasts may require some downward revision, we expect that a rebound in private sector investment and the improved capacity from higher government spending on infrastructure will raise growth levels from 2014 onward.”

According to Nene, the 2011 Census showed that 78.4% of South Africa’s 14.5-million households live in formal housing.

The government-subsidised housing programme has provided housing opportunities to over 20% of the population. The home ownership rate, confirmed by the census, is 53%.

“The census also confirmed that the lowest home ownership rates are among households who have no income (48% ownership) and households with a monthly income between R3 200 and R6 300 per month (49% ownership),” said Nene.

While government is addressing the plight of the poorest segment, the deputy minister referred to the various initiatives launched by government to enable more households in the gap market segment to obtain houses.

One of these is the Finance Linked Individual Subsidy Programme of the department of human settlements, announced by President Zuma last year. In his most recent State of the Nation Address he reported that, in 2012, provincial departments committed a budget of R126-million of the Human Settlements Development Grant for this programme. Some R70m has already gone to 12 registered projects while a further eight gap housing projects are currently underway.

In his budget speech, Minister Gordhan again reiterated that South Africa is a rapidly urbanising society with 62% of its people living in cities and towns, and needs to meet urgent demand for housing, among other things. He announced that funding for improving human settlements was to be increased from R26.2bn to R30.5bn over the next three years.

Other initiatives to support mechanisms to increase the supply of affordable housing listed by Nene include the Urban Settlements Development Grant introduced to metropolitan municipalities in 2011, the Cities Support Programme, and tax incentives to developers building houses with a sale value of up to R300 000 per house.

To overcome the resistance among banks to grant loans to this segment, the national treasury and the department of human settlements are working together to find credit-enhancement mechanisms that would assist households in this respect.

Referring to the achievements of IHS in South Africa in developing the affordable housing market, Nene said: “This is the kind of commitment we want to see from the private sector.”

He warned against the “many naysayers” saying it was “easy to get caught up in the immediate negative headlines and environment” and avoid investing in South Africa. Yet, South Africa remained a “worthy and attractive investment destination”, he said.

Adding her voice to Nene’s, Soula Proxenos, managing partner at IHS, said private equity investment is key to Africa, as public markets are not well-developed.

“Private equity is an ideal way to build up capacity, capitalise young business and drive large entities," she said.

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