How Will South Africa’s New FLISP Subsidy Work?

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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!

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10 responses to “How Will South Africa’s New FLISP Subsidy Work?

  1. i am earning less than R8000pm, that means wont be getting a government sudsidies anytime soon since jouburg run out of low cost houses prices ranges from R300000.00.

    what does one needs to do now??

    1. Hello Sampson. You’re probably right. With an income of R8000 (and assuming you have no other credit outstanding) you might be able to afford a mortgage of about R232 000, paying R2400 per month over twenty years at an interest rate of 11% (I’m assuming a rate of prime + 2% just to be conservative – if you were able to get prime interest of 9%, then your mortgage affordability would increase to about R266 000). At R8000 per month you’d be eligible to apply for a subsidy of R57 300. So, if you qualify for 11% interest at the bank, your total housing affordability would be R232 000 + R57 300 = R289 300. If you could manage to get your mortgage loan at 9% interest, however, you your total housing affordability could be R266 000 + R57 300 = R323 300. That’s great, but what we don’t know is if the R300 000 price maximum is inclusive or exclusive of VAT. If its inclusive of VAT, then you’re fine – except that there won’t be much housing available for R300 000 including VAT. If its exclusive of VAT, it is likely that most houses will be priced at R300 000 + 14% = R342 000, which means that even at 9% interest you won’t be able to afford the product price. This is really confusing. Please go to the bank – visit all the banks you know – and test your eligibility for a mortgage loan and the interest rate at which they’ll give you the loan. Banks compete, so you may find that one may give you a lower rate in order to get you as a client. Also make sure that you can afford not only the monthly payment as it is now (for you, it would be R2400), but also what it may become should interest rates rise. We’re at a low point in our interest rate cycle and many people think it will eventually go up. When it does, your monthly repayment obligation will increase. You have to make sure you can afford that.

      Of course, the real solution to your problem would be if the new FLISP subsidy were available to individuals wanting to buy homes on the resale market. Then you’d be able to buy a house for less than R300 000, and it would be more within your affordability, possibly costing less per month, depending on its price. Maybe that’s what you should do anyway, and just forgo the subsidy – see if you can find a house on the resale market that you can afford. There aren’t many, but I’ve seen some older houses, or inner city flats for sale more in the R200 000 market and below. Hopefully the Department of Human Settlements will change their policy soon to allow people to buy houses on the resale market. If they don’t, they won’t be helping people other than those at the high end of the FLISP target market.

  2. This housing subsidy?what about single parents who already own homes and are battling to improve their homes.Its very unfair that one has to only purchase a home within a certain bracket.
    Can anyone else apply for financial help for the homes or the improvemnets thereof!

    1. Hi Belinda – I understand your frustration, but already the government is subsidising an enormous proportion of our population. About 60% of South African households earn less than R3500 per month – making them eligible to apply for an RDP house. Then, another 25% or so of households earn between R3500 – R15 000 per month. This means that our government is committed to subsidising the housing needs of 85% of the population. This is unheard of internationally, and is a significant imposition on our fiscus. What is unfair, or short-sighted, is that the subsidy only applies to those accessing mortgage finance, and only applies to the purchase of new housing. This means that people who can only afford a resale market house, or for whom a mortgage loan may be inaccessible (but who might finance their housing with savings, or with a pension-backed loan or housing micro loan) are disadvantaged.

  3. I earn less than 8000 as well and cannot qualify for an RDP house as we earn too much.when i first saw this head line in feb 2012 i was excited but nothing happend.No notification on how to apply or when.
    I was really loking forward because this meant that i can finally buy a house as a first time buyer.

    Not sure what to do now!

    1. Hi there. You are in a difficult position – the new “gap” market so to speak. You probably could afford to buy a house on the resale market, but the subsidy isn’t available for that at this stage. You have a couple options. You could buy a house on the resale market right now, without the subsidy. If you are earning R7500 and if you have no other credit obligations, you could possibly afford a mortgage of about R215 000 (calculated at 11% interest, over 20 years, with a monthly bond repayment of R2250). That’s enough to buy an existing house on the resale market in some areas, or to buy a sectional title flat in some inner city areas. Or you could hang tight and hope that the FLISP subsidy will eventually become available. This might give you about R60 000 (at the current rates, if you earn R7500). This would bring your affordability to about R275 000 – still not enough to buy a new house, but a substantial amount for a good, entry-level house on the resale market.

  4. hi kecia, i would like to know a person that earns R9500 a month,how much subsidy am i going to qualify for.

    1. Hello. At R9500 per month, you could qualify for FLISP subsidy of R47 175. To access this subsidy, you would have to first find a new house for sale costing less than R300 000, and then apply and be approved for a mortgage. The bank would then help you with your FLISP subsidy application. If you have no other credit obligations, it is possible that you could possibly qualify for a mortgage of about R275 000 (calculated at 11% interest over 20 years with a monthly bond repayment of about R2800). The downside of course, is that there aren’t so many houses available for less than R300 000. But the possibility that you do qualify is an important message for developers who will start to build for this market.

  5. hi i forgot an impotant thing to mention that I’ve got a loan that I’m repaying ,will it make an difference to the amount that I’ll get from my subsidy as you stated on your reply.if yes could you please advice me on what must I do then because I really want to buy a house.

    1. Hello there. Your outstanding loan obligations won’t influence the amount of subsidy you can get, but they will influence the size of mortgage loan that you will qualify for. Your best bet is to go to a bank, show them your financials, and ask them how much of a loan you will qualify for. The subsidy cannot be accessed if you don’t also access a mortgage loan at the same time.

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