With millions of South Africans living in insecure housing, the residential property market can be supported to deliver good housing outcomes and support economic growth at a neighbourhood, city and national level. At a household level, home ownership is an opportunity for wealth creation and empowerment. As the Centre for Affordable Housing Finance (CAHF) has extensively documented, adequate housing and human settlements can significantly contribute to South Africa’s economic transformation efforts.
South Africa’s residential property market was valued at R5.5 trillion at the end of December 2019. While property appreciation benefits existing owners, it may also constrain access to affordable housing by lower income earners looking to climb the property ladder. Although the bulk of the total market value is concentrated in higher market segments, most formally registered properties are concentred in the lower segments of the market. Fifty-five percent of properties are valued at R600 000 or below and a third of all residential properties are valued below R300 000. This creates opportunities for government, financiers, investors and households. To understand market and lending activity further, South Africa’s residential property market can be tracked using deeds registry data, supplied by Lightstone.
A Large Affordable Market but New Delivery Lagging for the Working Class
As of the end of 2019, South Africa has 6.6 million formally registered residential properties on the deeds registry. Government delivery of affordable housing in the past two and half decades has had a profound effect on the residential property market. Government housing programmes are playing a substantial role in the provision of new housing stock at the lower end of the market. In 2019, 31% (2.04 million properties) of all residential properties were financed by government and 67% of properties valued under R300 000 were government subsidised properties (GSP).
Thirty-three percent of new residential transactions (a proxy for new delivery) were recorded in the sub-R300 000 market segment in 2019. In contrast, properties worth over R1.2 million made up 22% of new transactions. Since 2015, we observe declining delivery in the blue segment and erratic delivery in the entry market. By comparison, there is steady growth in delivery in the high value band.
Limited Lending in Affordable and Working Class Markets
Housing finance is vital in the housing delivery value chain and banks have an important role to play in providing housing finance to low income earners. Bonded transactions (in new and resale markets) are a useful indicator for access to finance, and in South Africa’s case, limited lending in low value market segments. Data show that there are less bonded transactions for properties in the affordable market, suggesting that low income earners are largely excluded from the market.
In 2019, this was true for both new and resale transactions. Resale market data shows that the major banks are mainly lending for properties valued at more than R1.2 million, and this has increased steadily between 2009 and 2019. The reverse is seen in the affordable segment – with the number of properties financed with a mortgage declining.
Of the major banks, Standard Bank accounted for the largest share of bonded transactions in the affordable market of properties valued R600 00 or less. Standard Bank’s lending activity makes up 25% of total bonded transactions under R600 000, followed by Absa (23%), FNB (22%), SA Home Loans (12%) and Nedbank (11%). This trend can partially be explained by over indebtedness of households with other credit products, affordability levels or a lack of savings to enter the market. But a lack of formal finance from the banking sector is indicative of a need for more flexibility and inclusiveness in designing affordable housing finance solutions that allow low income earners to access the property ladder.
Government’s housing programmes assist in bridging the affordability gap for low income households who otherwise cannot access the formal housing market. GSP properties make up a large share of properties at the lower end of the market. While supply of affordable housing is in decline, the resale market is the most significant source of supply. Government subsidised housing is an important but under-performing part of resale transactions, in the entry and affordable market.
Creating Opportunities for Affordable Housing
A large and growing segment of the market is made up of subsidy beneficiaries and lower income households that transact less frequently and in lower value property, often without mortgage finance. The challenge is how to support growth in the entry market, but also meet housing aspirations of households in the working class. Across most of South Africa’s cities, this gap is absorbed in informal settlements and backyard rentals and through informal transactions of homes in low- value neighbourhoods. Recognising the potential of the affordable housing market and injecting liquidity, through mortgage finance, can facilitate the acquisition of adequate (low value) housing by low income earners and allow households to move more easily from one property to another over time. The Transaction Support Centre (TSC) pilot project identifies systemic constraints (overwhelmingly related to title deeds) that impede formal transactions and thus prevent property owners from realising the value of their housing assets. The TSC has assisted clients in low-income areas, largely consisting of GSP, to formalise tenure and regularise transactions.
Understanding housing market dynamics, price trends, housing stock and lender activity, helps to identify affordability patterns, gap markets, and borrowing constraints. Data-supported analyses can inform policy and improve the targeting of investments in the residential property market. This is especially crucial for identifying and addressing housing challenges in the affordable housing sector.
See Rust, K. (2018). Radical Economic Transformation: Leveraging the Housing Asset Through Trade. CAHF. http://housingfinanceafrica.org/app/uploads/Wits-FOTC-May-2018sm.pdf
 To identify GSP, CAHF uses South African deeds registry data, so the data only includes new registrations of houses where the beneficiary has received a title deed. Therefore, physical delivery of GSP is under counted since houses where the beneficiary has taken occupation but not received a title deed are not included. GSP can only be formally transacted when a title deed is issued, and 8 years have elapsed.
 For more on the activities of the TSC, see Melzer, I., Robey J., Hutsebaut, L and Rust, K. (2020). The Transaction Support Centre: Lessons Learned. CAHF and 71Point4. http://housingfinanceafrica.org/app/uploads/Final_transaction-support-centre_june2020.pdf