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Friday Mar 02, 2012

Hope for lower income property buyers?

Property ownership has been, and continues to be a vital aspect of life in South Africa - especially for the lower income groups.

This is plain to see from the amount of protests regarding housing and the incredible demand for RDP homes. The demand for property has gone un-sated mainly due to the fact that it is incredibly difficult for this group to obtain home loans.

While the State of the Nation Address is a key, yearly moment of import for South African politics, it is doubtful that those in the residential property market trade expected any surprises. Predictably the key topics of job creation and infrastructure development took precedence but, there was also significant announcement regarding the purchasing of property.

The President quoted from a letter written by Mzukisi Mali - a public servant in the Grahamstown region. Mr Mali, it turns out, is in the unenviable position, which thousands of South Africans share, of being too well off to qualify for an RDP house but, too risky a proposition for a bank to grant him a home loan. This situation is all too common and very difficult to resolve on a personal level.

In 2010 government announced the creation of a one billion Rand guarantee fund with which it hoped to enable citizens to obtain home loans. Zuma indicated that; "We are pleased to report that this fund will start its operations in April, managed by the National Housing Finance Corporation."

It is important to note that there will now be two financial schemes in play: the national housing-guarantee scheme - of R1 billion - and the housing subsidy for the gap market which will enable prospective home owners earning between R3,500 and R15,000 to procure a subsidy of up to R85 000 from their respective provincial housing departments.

"The roll out of this fund could change the property landscape significantly in that many more people will now be able to afford purchasing a home as opposed to renting a property" says Jan le Roux, CEO of Leapfrog Property Group.

Rudi Botha, CEO of leading mortgage originator Betterbond, says: "We are obviously pleased at the news that the long-awaited housing guarantee scheme will start to be implemented soon - although there is some doubt about whether it will be finalised by April. This scheme will basically subsidise the premium payable by the borrower for an insurance policy that protects a bank against loss if the borrower defaults on a home loan."

South Africa is not the first nation to toy with the idea of assisting buyers in purchasing their first homes. The Dutch have piloted a Home Ownership Guarantee Fund with great success. In 2002 over a third of Dutch mortgages with a National Mortgage Guarantee from the Fund.

According to the Ministry of Housing, Spatial Planning and the Environment, International Housing Unit [link: www.vrom.nl], the fund guarantees: "the lender repayment of the mortgage debt if the buyer can no longer fulfil his obligations. Any residual debt after compulsory sale will in principle be waived and will be borne by the fund." The amount required is born in half by the government and in half by the local authorities should the principal debtor's funds be insufficient to cover the loan.

As a result of this scheme, Dutch home buyers - from lower income groups - have found that financial institutions are more amenable to loaning money and, that they set a marginally lower rate of interest. There are strict requirements: the property (to be purchased) must be below a certain amount and the mortgage costs may not be too high in relation to the applicant's income.

"Should the South African guarantee scheme come into play in 2012, international evidence indicates that it will do much to encourage banks to lend money, thereby placing lower income buyers into their first homes - a move that is long overdue", says le Roux.

Leapfrom Press Release

    
 

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