The extent to which prominent lenders can issue loans to individuals entering the affordable housing market is being constrained by the lack of affordable-housing developments in South Africa.
Homes within the R350 000 to R550 000 cost bracket are in undersupply, with only 15 000 to 20 000 new units entering the market on a yearly basis, despite a market demand of over 600 000.
First National Bank housing finance CEO Marius Marais tells Engineering News that the issue lies not with the banking sector’s aversion to the issuing of loans to first-time entry-level buyers, but rather the ability of these individuals to find a house in their price bracket.
“There is a perception that banks aren’t lending enough, but there are larger factors at play, most significantly the lack of supply. We don’t have a limit as to how many affordable-housing loans we can issue, but we are restrained by market forces,” he explains.
FNB recently reached its R10-billion loan target in the affordable-housing market, which provides houses to qualifying customers with a gross monthly income of up to R18 000, with the bank predicting significant growth in this segment.
To offset the supply deficit, FNB channels around 65% of loans into housing developments which are aimed at growing the number of new houses available, and bolstering the secondary affordable-housing market.
Meanwhile, Marais says that government has a fundamental role to play in creating appropriate market interventions and policies that will play a long-term role in assisting first-time buyers in accessing the market.
He adds that the engagement of the private sector with government has resulted in the devel- opment of a finance-linked subsidy programme (Flisp), driven by government agency the National Housing Finance Corporation, as well as a loan default initiative, the Mortgage Default Insurance (MDI) programme. Both initiatives should be implemented within the next year.
“Flisp will provide considerable assistance to those individuals who would otherwise never be able to afford their own home, while MDI will provide an essential form of government-backed risk cover that will enhance the appetite of banks and enable a greater degree of stable liquidity in the market, creating stable market cycles,” Marais notes.
This backing from the State is set to provide some degree of protection for banks, which face the threat of systemic risks such as the recent global economic downturn.
“The last thing you want as a bank is a property market that goes into heavy cycles during which the institution will make money and take severe losses. The fact that government is the guarantor is significant because it comes with a sovereign credit rating and a capital base,” he says.