The launch of the National Housing Finance Corporation will open new avenues for finance, reports Karen Harverson
At present, South Africa’s traditional financial institutions provide housing finance to just 30% of the total population (mainly middle and upper income earners) and non- traditional lending institutions are mushrooming to fill the gap.
These institutions are targeting the 30% of the balance with restricted access to housing finance. This sector has stable incomes and the ability to contribute to the cost of housing but problems accessing credit from traditional sources.
“Only if the banking sector and non- traditional lenders are mobilised into the market will this neglected sector of the population get access to housing finance,” says Johan de Ridder, adviser to the minister of housing.
He adds that the banking industry has massive capacity — managerial, infrastructural and financial — and efforts to broaden access to bank credit on a sustainable basis remain central to the housing credit drive.
In an effort to support this drive, the Housing Ministry is expected to launch the National Housing Finance Corporation next month. De Ridder is the favourite for the top job.
The corporation’s brief is to make the banks’ job easier in gaining access to under-serviced segments of the housing market, as well as to support and promote the funding and growth of specialised (emerging) lenders.
“The corporation will establish the capacity to monitor housing finance delivery trends and, in the long term, ensure a stable and functioning housing finance system in the country servicing all households able to afford credit for housing,” says De Ridder.
To mobilise the banking sector, the corporation will initially manage the Mortgage Indemnity Fund (MIF), as well as look at new programmes to mobilise the banks. “Later, the corporation may introduce a secondary mortgage market in South Africa.”
The MIF was set up by government to provide compensation where a breakdown in law and order results in the lenders being unable to recover the value of the mortgaged property when the borrower defaults.
“The MIF is showing promising results and should be expanded,” says De Ritter. Since it was implemented in June last year, some
R2-billion has been lent by banks for housing into areas covered by the MIF where lending was previously withdrawn. This figure highlights the capacity of the private sector to deliver relative to the state, he adds.
In financial terms, the corporation aims to mobilise at least a further
R5-billion of finance through the banking sector into the government subsidised market over the next five years.
The corporation’s second objective will be to promote the growth of alternative specialised lending capacity as many of these non- traditional lending institutions are battling to raise funds from investors and the money market at acceptable rates.
“To mobilise and support the expansion of specialised lenders, the corporation will act as a wholesale funding intermediary, enhancing access to funding, and hopefully, reducing the cost of such funding by providing investors with investment opportunities in larger, risk- diversified debt instruments,” says De Ridder. These efforts should result in about R5,4- billion of new investment in housing over the next five years.
The non-traditional lending institutions are providing between R35-million and R45-million in small short-term loans for housing a month, and De Ridder believes this can be significantly expanded.
Many areas of South Africa are not serviced by non-traditional lenders and De Ridder says the corporation may be provided with funds from the state to increase capacity.
“The availability of money in South Africa is not an issue — it’s turning it into viable credit on the ground that is the problem.”
When the corporation is established, it will be registered as an unlisted public company, capitalised at R500-million, of which R400- million is government finance and the balance is provided by contractual savings institutions.
“It’s important to note that government money is going in as capital, not as a subsidy, and that the future R5-billion capital projected to be mobilised by the institution will come from the private sector,” adds De Ridder.