Homeowners unlock new wealth in affordable housing
A total of 1 000 affordable houses in Cosmo City, financed by FNB in 2006, have increased in value by an estimated R100-million in total.
The units, which are part of an affordable housing project in the northwest of Johannesburg, are two- and three-bedroom, ranging from 40m2 to 55m2 in size and costing between R170 000 and R250 000.
Today, on average, each property has gained an additional R100 000 in value.
"There is real wealth creation here," the bank's chief executive of housing finance, Marius Marais, said.
"People buying the properties, apart from living there, should have a real benefit. That capital can be leveraged for other things."
In the past decade FNB has financed almost 100 000 homes through its SmartBond initiative, which offers 100% bonds to those in the market for an affordable house.
Financing in the future
The bank is planning to finance an equal amount in the next five years, Marais said.
Apart from the benefit to the property owner, building a 45m2 property provides 200 days of work, not counting the indirect jobs created.
Peter Hofmeyr, director of Johannesburg Financial Securities, which developed single residential stands at Cosmo City as part of a joint venture, said the project consists of 5 000 fully subsidised RDP houses, 3 000 finance-linked individual subsidy programme homes (a once-off down payment provided by the government on behalf of qualifying households) and 3 500 fully bonded units.
The latter, in particular, are a huge success, he said. "It is quite obvious there is a lot of potential."
The demand for affordable housing is most certainly there, estimated at a gap of more than one million households, but can people afford it?
Affordable housing is priced below R600 000. FNB data shows that those with lower incomes — up to R12 000 a month — are more inclined to own and fully pay off their houses than those in higher income brackets.
Credit scores remain the same
The average price of first and repeat transfers since 2011 has remained at about R500 000.
While the credit scores of customers have remained almost the same in this period, Marais said that an analysis of internal FNB data showed that fewer people were able to afford the housing.
The bank's approval rates in this market segment are not much lower than before as the demand is huge.
Affordable housing generally comes with a 100% bond and no deposit is required. It is more than likely that this segment of the market would use short-term funding to source a deposit, Marais said.
"Immediately there is a cash flow strain … We don't want to create problems from the very beginning."
Volume in this market is the big issue, he said. Although affordable housing is often described as a growth market, FNB's numbers show that it has remained fairly static over the past 33 months.
Transfer of title deeds
The first transfer of title deeds in a new development has remained either slightly above or slightly below the 1 000 mark, and between 25% and 30% of all transfers, each month since January 2011.
"The development pipeline is down at the moment," Marais said, but he noted that a number of units are coming up and FNB, which has a strong focus on new developments in this market, is looking into development finance.
At Cosmo City, the bank provided a package consisting of development and end-user finance for many of the properties.
Hofmeyr said there are about six developers undertaking significant affordable housing projects.
"It's almost as if the developer is seen as the enemy … the barriers to entry are high, it's very expensive … [and] everything works against you," he said.
Challenges and delays, especially when it comes to approvals from town and city councils or access to electricity, deter many developers, who may not be able to afford to wait out the lengthy processes.
Affordable housing projects
Exposure in affordable housing projects is also generally big because of the large number of units.
"One gets so squeezed; it is high risk … There is a massive market, if one could do away with some of the bureaucracy," Hofmeyr said.
Although FNB's loan book is R12-billion, with just under 20% of the total the bank does not hold the lion's share of the market, unlike Standard Bank, which has 40%.
"We are not the biggest, nor do we want to be the biggest," Marais said. What is important is the long-term sustainability of the business, he said. "There is such an opportunity to expand geographically."
Data shows that the majority of transfers in the affordable housing market took place in Gauteng. The fewest were in the Northern Cape, the Free State and Limpopo.