Bringing Life to Mortgage Markets in South Africa

South Africa’s mortgage market has shown lacklustre performance since the Global Financial Crisis (GFC) in 2008.  While origination grew in real terms between 2010 and 2015, this paper shows that the nominal book value of bank mortgages remains below pre-GFC levels in real terms. At the height of the expansion in the mortgage market in 2005, when the market grew 43% year-on-year in loans paid out, new loans accounted for roughly 60% of the total book value. In 2017, this was at 20%.  Using Stats SA and mortgage market data, this paper estimates that in 2007, 14.5% of households in South Africa had a mortgage.  By 2016, this had declined to 9.7% of households.

Number of mortgages originated in South Africa by market segment (2007-2015)

Data source: Citymark (2016) for CAHF

Mortgages play a critical role in any economy.  In South Africa’s economy, the potential of the mortgage market to support the realisation of government’s commitment to “ensuring property can be accessed by all as an asset for wealth creation and empowerment” (2004 Breaking New Ground) make them possibly even more important.  Since 1994, the South African government has delivered upwards of four million government subsidised properties, transferring them entirely for free, to qualifying beneficiaries.  Just under two million of these are formally registered on the National Deeds Registry.  These properties are subject to a pre-emptive clause that restricts the homeowner from selling within the first eight years of ownership.  Thereafter, they can be freely traded on the open market.

In the context of an already slow mortgage market, mortgage lending to this entry-level market is particularly low.  In this paper, 71point4 asks the question why.  The paper explores the issues as they relate borrowers, houses, lenders, and governance and administration.  The paper draws on the outputs of a mortgage profitability model, and then considers how we might build better mortgage markets in South Africa.

The bottom line:

“The financial sector, in its engagement on affordable housing to date has demonstrated it can command a response across all spheres of government. It has the capacity, financial resources and an immediate financial interest to direct and implement market-making, local interventions. The state, by giving households properties, mostly (admittedly not always) with title deeds, has laid the foundation for the emergence of South Africa’s new middle class. It is up to the financial sector to build it.”

A presentation summarizing this paper is also available here.

CAHF’s work in South Africa is supported by: