There has been a lot of interest in the design of the new housing subsidy announced by President Zuma in his State of the Nation Address in February, and many questions have been coming into this site. This is to be expected, over twenty percent of South Africa’s population earns in the income bracket defined by the new subsidy – this is the so-called gap market where people have been struggling to get housing they can afford. According to the President’s speech, the new subsidy went into effect on 1 April 2012. It is unfortunate that nothing has been published on the government’s websites to explain the policy and how it will work. No official policy has been released – it must still be approved by the meeting of the Minister with the nine provincial MECs. Thankfully, a very helpful official at the National Department of Human Settlements offered me answers to some of the questions.
1. How will it work?
Essentially the subsidy is planned to work like this: A household earning between R3501-R15000 per month needs to find a newly built house for sale at a price of R300 000 or less, and then apply to a bank for a mortgage to buy that house. If the household qualifies for the mortgage, they will be allowed to complete a subsidy application form, which the bank will then submit to the National Housing Finance Corporation (NHFC). The NHFC is the National Implementing Agent for the subsidy, and is entering into agreements with the nine provinces and various banks to make these processes work. Once the NHFC has approved the subsidy application (the amount you qualify for is in this table), the money will be paid to the seller either directly by the NHFC or via the bank, and the borrower will then get a mortgage loan from the bank for the remaining amount of the purchase price, which they’ll then repay over time.
In the short term, the subsidy will only apply to newly built houses that cost less than R300 000. This means that the buyer cannot simply find any house on the market – they need to find a new one, in a new project that is underway. While the government has also introduced a new incentive for developers to build housing for this price, its not clear if there will be much ready for sale when the subsidy scheme comes into effect on 1 April 2012. A quick scan of the Internet found some houses costing less than R300 000, but not many:
- The least-expensive home available from Cosmpolitan projects is a 40m2 unit in a project called Beverly Hills in Palm Springs, Gauteng. This is in the range, costing R278 000. All of Cosmpolitan’s other projects are above R300 000 per house, however. (www.cosmojhb.co.za/now_selling_page.html)
- RBA Homes has four developments listed. The cheapest of these is Bram Fisherville – 40m2 full title, free standing home at R327 400 (http://rbahomes.co.za/bram-fischerville-listings)
- Calgro M3 (www.calgrom3.com) seems to be working hard to offer housing below the R300 000 range. In Gauteng, they have a sectional title development in Fleurhof, with a 40m2 and a 43m2 unit both going for under R300 000. In Jabulani Heights, a development in Soweto, Gauteng, prices start at R242 000. Scottsdene is another Calgro M3 development, in the Western Cape, where prices are envisaged to range between R240 000 – R340 000 for apartments. Freestanding houses will start from R360 000.
Its not clear if this R300 000 price limitation is inclusive or exclusive of VAT. This is a particularly important issue – worth up to R42 000.
2. How much is it worth?
The subsidy works on a sliding scale for households earning between R3501 – R15 000 per month. Households with lower incomes will qualify for more subsidy, and those with higher incomes qualify for less. The subsidy table can be downloaded here.
The subsidy is only available, however, if the applicant is also accessing mortgage finance. Households who finance their housing with a pension backed loan or a housing microloan will not be able to access the subsidy. While the subsidy only applies to new houses delivered in new projects, this limitation is unlikely to make much difference. By virtue of the price of new housing, the subsidy will only go to households at the upper end of the income spectrum. Households earning less than about R8000 per month are unlikely to afford the properties available even with the new FLISP subsidy. Hopefully, once the programme has been rolled out, individual applications to purchase existing properties in the resale market, will be entertained. The Department has promised this – it is only through the resale market, where far many more houses costing less than R300 000 can be found, that lower income households in the target market will be able to benefit from the subsidy.
Even if the subsidy is made available for buying houses on the resale market, however, the requirement that the subsidy be linked to mortgage finance will undermine the breadth of the population that is able to access the subsidy. Certainly there are households in South Africa who earn more than R3500 per month (so, are ineligible for an RDP housing subsidy) but whose income is erratic or informal, making them ineligible for a mortgage. Domestic workers, for example, or taxi drivers, farm labourers, spaza shop owners and others all fall into this category. In order to access a mortgage loan, they would need a payslip, and to be able to enter into a twenty-year commitment to make regular monthly payments. Without these, access to a mortgage is unlikely. And without access to a mortgage, they would be unable to access the subsidy. This creates, perhaps, a new “gap” market, between those able to access housing in terms of the RDP subsidy programme, and those able to access the new FLISP subsidy.
3. What can individuals do to access the subsidy?
This is the most difficult question to answer – and it’s a real problem that there is no information available on the website. Ultimately, buyers who fall in the eligibility range have to first find a house – so, contact the developers in your area and ask them how they plan to deliver to this opportunity. Then you have to build the network of finance – bringing in your savings (if you have any), applying for and being approved for a mortgage, and then, with the assistance of your bank, applying for the subsidy from the NHFC. This is a complicated process, and hopefully the developers, banks and NHFC will provide assistance to help first time homebuyers meet their housing needs. It also offers an opportunity for estate agents working in this market to develop their skills and improve their understanding of how the subsidy works and how it can be accessed. In the meantime, I urge everyone to give the NHFC a call so that they understand the pressure they are under to deliver: 011-644-9800. The National Department of Housing’s telephone number is 0800-1-46873. Please write and tell me if they give you any more information!