As part of the Financial Sector Charter requirements, banks have to lend money to homeowners in the low-cost housing market. This used to be a segment of the market previously ignored by banks as lower-income earners and low-cost housing did not qualify in terms of the banks’ risk profile.
The charter brought about a change in this approach, forcing banks to recognise an important aspect of transformation, which is giving people who often deposit money into the bank a chance to put a roof over their heads.
But the banks have run into a problem — there are not enough low-cost housing units being built.
Jopi van Honschooten, director of integrated residential developments at Standard Bank, says that developers have moved out of this market for more lucrative contracts in the infrastructure space.
As a result the banks became concerned that in time the limited number of low-cost units coming into the market would affect their ability to reach their goals as defined in the charter.
“All four major banks realised that they had to enter the supply chain. We have to get involved to get houses on the ground to finance them,” says Van Honschooten.
Standard Bank set up a division to find a way of funding the entire project rather than providing financing only at the buyer’s end.
Rather than separating a development into various stages with different parties involved all trying to turn a profit, Standard Bank found that it could, on a sustainable business basis, get involved right from developing the land to obtaining residential rights, putting in services and building the houses.
“If you take the full value chain, there is a sustainable profit,” says Van Honschooten. Part of the process also involves the bank assisting municipalities to install the services needed to run the township development.
Normally services such as sewerage, electricity and water are the responsibility of the local authority, but not all municipalities have long-term plans in place and often they find they do not have the budget to implement the development.
“If the municipality does not have the capability and the development is in a good area close to places of work, we take the view that we can play a role in partnering with local or provincial government to fast-track services,” says Van Honschooten, adding that this can be in the form of bridging finance, allowing the municipality to fast-track services in an area that may not have been immediately budgeted for.
Standard Bank also project manages the construction. “It all depends on the need and circumstances. Where there is a compelling opportunity, we will assist in providing the services.”