Research launched today by FinMark Trust has found that as of September 2010, 1.44 million government-subsidised properties were formally registered on the Deeds Registry. These comprise 24% of all formally registered residential properties in South Africa.
Over 2010/11, FinMark Trust undertook a study into the asset performance of government subsidised housing stock in South Africa, with support from Urban LandMark, the National Department of Human Settlements, the Western Cape Department of Human Settlements, the South African Cities Network, and the FB Heron Foundation. The study involved an analysis of how subsidised properties were trading formally, on the Deeds Registry, and then a series of household interviews with a small sample of respondents from three settlements. By matching subsidy applicants with properties, a total of 1.7 million subsidy applicants were identified as property owners of 1.44 million properties. Half of these properties (49%) were found to be located in the eight metropolitan cities. The highest number of registrations across the provinces was found in Gauteng (395 765), the Eastern Cape (238 682) and the Western Cape (208 852).
The study found that there is a substantial backlog in title deeds, however. By September 2010, the National Department of Human Settlements had reported that 2.94 million houses were completed or under construction. With only 1,44 million formally registered, this implies that over one million subsidy houses have not been registered on the deeds registry. Since 2004, the number of subsidised houses registered as a proportion of those reported delivered has plummeted, reaching a low of 17% in 2007. This is a critical asset quality challenge. Title deeds protect rights to a property and record changes in ownership. They provide individuals with an address, recognizing the owner as being part of the municipality and enabling the owner to secure finance, or to bequeath the asset to family members. The failure to provide title deeds means that beneficiaries are being denied a critical point of entry into the formal property market. Beneficiaries are not able to sell their houses formally and as a result, engage in informal transactions, which ultimately undermine the individual property owners’ tenure security and the integrity of the Deeds Registry in South Africa. It appears that the decline in registration is linked to a change in the progress payment regime: in 2004, the requirement that title be transferred before payment was removed. It is also possible that from the municipality’s side, the urgency for title is reduced in the face of the 8-year sale restriction, which was passed in 2001. If these houses had been registered, the 2,94m houses would comprise about 39% of the entire residential property market.
The backlog in title deeds notwithstanding, the research found that government subsidised housing is valuable to beneficiaries and is having a profound impact on the growth of local economies and sustainable human settlements across South Africa. While the financial asset value of the house is overlooked by the majority of households, a significant minority are using their homes to gear finance (120 000 mortgage loans were issued against subsidised housing between 1994 and 2010), and a few (90 858) have even sold their homes and purchased second properties. Even at these small proportions, the extent of finance mobilized by these assets is not insignificant: subsidised properties have been used to secure roughly R20 billion in mortgage finance. Slowly the government subsidised housing market is beginning to resemble a normal market.
There are constraints, however. The research shows that there is substantial ambiguity amongst beneficiaries as to the acceptability of using their subsidy house as a financial asset and many believe that it is simply illegal to sell their housing, whether or not it falls within the 8-year sale restriction that applies. The research proposes that interventions should be put in place to enable people to transact more easily in the market, with access to good information, support and finance. Explicit attention to the performance of housing as an economic asset, through the promotion of a sustainable backyard rental strategy, is also required, and this should fit well within the Minister’s “Each-one-settle-one” campaign. Further, parallel research by Urban LandMark offers useful proposals for how to overcome the backlog in title deeds and improve the rate by which subsidised properties are registered with the Deeds Registry.
If the challenges outlined in the report are overcome, the 1.44 million subsidised properties on the deeds registry could offer potential and important resale supply for the gap market: households too rich for a subsidy but too poor to afford a R250 000 new house, might have their housing needs satisfied if they could buy a once-government subsidised property offered for sale in the resale market, at R200 000 or even lower. In this way, government’s RDP housing programme is over time filling in the rungs of the property ladder. This could also reduce the risk obligation of the government’s R1 billion guarantee scheme, as borrowers could feasibly down-scale into resale market properties.