Building houses is only half the job {writer: Piet Coetzer}

Ever since the advent of full democracy in South Africa in 1994, housing the landless poor – particularly in the urban areas of the country – has been one of the main instruments in fighting the effects of poverty. Local government plays a key role in the provision of housing to the poor.

Providing decent formal housing to the poor is, however, only the first step in the rehabilitation of the poor and their proper integration into modern society. The job is not fully done until people own the house in which they live, turning it into a capital asset that they can use as a launching pad to improve other elements of their standard of living.

On the provision front, South Africa has done quite well since 1994, and the Department of Human Settlements reported recently that almost three million houses – generically called “RDP (reconstruction and development programme) houses”, or serviced sites – have been provided by the government in the years since 1994.

On the ‘property’ front, where the deeds to these properties have been registered in the names of the people who occupy them, the picture is less rosy. Of these almost three million properties, only 1.44 million were formally registered on the deeds registry.

This means 1.5 million housing subsidy beneficiaries have not received the deed to their property. In the process, opportunities to raise billions of rands as collateral by those beneficiaries of government-subsidised housing are going to waste.

It would seem that in many instances, a major stumbling block in regularising the situation is red tape problems with the formal proclamation as townships of land on which the housing is provided.

Joburg initiative

The City of Joburg, South Africa’s most densely populated metropole, has recently launched an initiative aimed at turning this situation around for the people of that city in the near future.

For Johannesburg residents who have been waiting for years to receive the title deed to their very own house, there is fresh hope in terms of the new “My Land, My Heritage” project.

Under the project, the first 300 people were given their title deeds. At a special ceremony on 17 January at Helderfontein Conference Centre in Kyalami, City of Joburg Executive Mayor Parks Tau handed over title deeds to these beneficiaries.

The ceremony was part of the rollout of the Johannesburg Property Company’s land regularisation programme, which falls under the banner of the “My Land, My Heritage” project.

“This event is set to be an emotional and extraordinary day for these residents of our city, and it will be a great honour for me to hand over these documents which signify advancement on so many levels,” Mayor Tau said during the planning stages of the ceremony.

It falls under the ambit of Joburg 2040, the City’s Growth and Development Strategy, which was launched in October 2011. Joburg 2040 guides the City’s long-term growth plan and vision for the next 30 years, going into 2040.

“Our collective and inclusive vision for the City of Johannesburg is one where community development, personal growth and social mobility are enhanced, so that challenges of poverty, vulnerability, inequality and social exclusion are fundamentally addressed,” said the mayor. “The event marks another major step in the right direction toward achieving this.”

The Johannesburg Property Company (JPC) introduced its land regularisation programme in 2005, with the aim of auditing, verifying and transferring urban land to people who were previously unable to own land because of apartheid legislation. It comprises two phases: a full audit of council-owned land and identifying land release strategies, and implementing these strategies.

Property economy

“The land regularisation programme is unique to the City of Johannesburg, forming the basis of a sustainable property economy through expediting the transfer of properties to beneficiaries, as well as releasing vacant sites on public tender,” said the managing director of the JPC, Helen Botes.

People who occupied council land illegally are being evicted. Over the next three to five years, the programme aims to transfer and release about 3 700 properties in Alexandra, Soweto, Orange Farm and Ivory Park, she added.

There are a variety of advantages to adopting the programme, particularly that it caters for the transfer of property to legitimate tenants. “By transferring the properties to beneficiaries – and simultaneously compiling a verifiable and more accurate asset register – the City is better placed to secure an increased rates base, while also contributing to the implementation of the City’s growth and development strategy,” said Member of the Mayoral Committee for Economic Development, Sello Lemao.

“The two-tiered programme focuses on firstly formulating property plans for earmarked areas. The second phase includes improving the sites and releasing them to beneficiaries.” By doing this, the programme provides economic incentives to invest in strategic parcels of land, and stimulates economic and social development.

With the help of the Gauteng Provincial Department of Housing and Local Government and the National Treasury, the JPC has been able to make the handover possible. Sponsors of the 17 January event include Investec, Atterbury Property, La Farge and Calgro M3 Holdings.

Overall picture

Urban LandMark, a non-governmental organisation that is dedicated to making urban land markets work for the poor, recently said delays in township proclamation were the major factor undermining the transfer of title deeds to beneficiaries of housing subsidies.

Local Government Research Centre director Clive Keegan said the knock-on effect of this was that those who did not have a title deed were unable to raise collateral finance on their properties.

“This could be used to improve their dwellings. Where they have title, they are able to acquire households goods and also make use of capital borrowed against their properties to start small businesses,” he said.

Keegan added that in half of the households, the ability to use their property to project themselves out of the working class into the middle class was lost.

Urban LandMark researchers Girly Makhubela, Lucille Gavera and Lerato Ndjwili-Potele further made the point that “poor households cannot fully benefit from the ownership of a property and use it properly as an asset and to improve their financial circumstances”.

They noted that while there had been much emphasis on the poor building quality of many subsidised houses, “scant attention is being paid to the potentially more harmful long-term effects of not transferring registered title to subsidy properties”.

The Department of Human Settlements provides small, low-cost houses on a stand to qualifying individuals who have limited income.

The major cause was a failure by developers – both in the government and the private sector – to finalise the establishment and proclamation of new areas being developed for subsidised housing.

The department said many beneficiaries of housing had not collected their title deeds even though they had been processed. Urban LandMark said this could be the result of a lack of understanding of the importance of the deed.

Among municipalities that were tackling the legal problems were Johannesburg, Overstrand and Tshwane (Pretoria).

In Tshwane, about 8 000 title deeds had been registered, but not issued.

Urban LandMark said metro and large municipalities should establish dedicated teams that focused on the township proclamation and establishment process.

It further noted that the Municipal Systems Act provided that a registrar of deeds could only register the transfer of a property upon submission of a certificate issued by a municipality.

Home ownership prospects

In the private open marketplace, the affordability of home ownership has increased considerably in recent times, and at the average level seems to have become softer on the cash flow than renting.

House prices and interest rates have fallen to such a great extent, that the monthly cost of owning a home is now more affordable than at any point in the past 15 years and less expensive than renting in a number of South African suburbs, according to Auction Alliance chief executive officer, Rael Levitt.

Interest rates, which are hovering at around 9%, are at their lowest levels in three decades and, as a result, monthly bond payments on median priced homes are becoming lower than the average rent levels in many middle-income areas.

Auction Alliance’s third quarter analysis of housing market conditions in the country’s three largest metropolitan areas found that home values had declined in all markets, while residential rentals had risen across the country.

“It does remain less expensive to rent than to buy in most popular suburbs, but we are reaching the stage that if a buyer has a 10% deposit, it is cheaper to buy than rent on properties under R750 000.”

However, affordability has not done much to lift the sagging housing sector because many would-be buyers are unwilling to purchase a home or are unable to qualify for a bond.

“It’s one of the most striking developments of the housing downturn. The initial building blocks for a recovery are in place, but the legacy of the recession is acutely preventing households from taking advantage,” says Levitt.

While the monthly carrying costs on a bond are lower than average rents in several suburbs, home ownership carries other costs that are increasing – a factor that may dissuade a number of potential owners.

Other would-be buyers cannot qualify for mortgage bonds because lending conditions are tighter or because they do not have enough equity in their current homes to use as a deposit.

Levitt says the reality of coming up with a deposit and the loan-qualification standards make things difficult for many new homeowners. “Even those who may qualify remain skittish about buying property in a market where prices could fall amid growing financial distress and weak employment growth.”

Another reason home ownership is looking more affordable is that, after several years of house price declines, rentals are growing as demand from entry-level tenants increases in an under-housed South Africa.

According to property economist Erwin Rode, interest on a mortgage bond was about 20% in 1997, and by 2011 this had halved to 10%. He argues that at first blush, this would have increased the borrower’s ‘borrowing power’ tremendously. However, he contends that with regard to new purchases, this is tragically not true because the dramatic drop in interest rates was partially responsible for the even more spectacular rise in
house prices.

A typical house, according to the Absa House Price Index, rose in value from about R200 000 in 1997 to about R1.1 million in 2011 (an astonishing 12.8% per annum). As a result, the instalment on a new purchase (assuming a 100% loan) increased from R3 400 in 1997 to about R10 600 per month in 2011. In sum, over this period, instalments on new purchases grew at a compound rate of 8.5% per annum, compared with an inflation rate (consumer price index) of only 5.8%.

Rode argues that the difference of 2.7% points is more or less equal to the posited rise in real incomes, which means that house owners do not necessarily find it more difficult to own a house now than 14 years ago.

Levitt maintains that affordability could continue to improve as prices slide even lower in coming months. “Further price declines are likely because the share of distressed sales tends to rise in the new year.

“Banks are often more eager to cut prices in an effort to unload properties quickly, which means that the greater the share of distressed sales, the more prices tend to fall.”

Lower inventories at the bottom end of the market have spurred more bidding wars at recent auctions as investors compete for homes that they can convert into rentals.

One hopeful sign is that house prices on the market have fallen from their bloated levels of a year ago.

“A glance at the property pages sees homes currently listed for sale at prices substantially lower than a year ago, when markets were reeling with a substantial overhang of properties amid a big drop in demand, and visible inventory was down sharply in several markets,” says Levitt.