What would significantly boost the amount of money available to potential homeowners is the creation of a secondary market.
COMMENT
Real estate isn’t a sexy subject, but it is the first step toward economic security and wealth creation.
The first real estate industry summit was held in South Africa last week. It was not the usual “talk shop” or industry trade show. It was the diversity of industry actors who attended that made the event different. Everybody who is anybody was there — banking groups, traditional real estate firms and online broker firms as well as public sector leaders who manage the regulatory environment in which the industry operates.
Why was this sort of broad-based participation by industry players important?
They play a prominent role in the South African economy and have the power and responsibility to further democratise this space in the country’s economic landscape.
Housing is one of the primary drivers of the economy. It affects everything from construction, manufacturing and the purchase of goods and services to capital formation and finance. Given its central role in the economy, home ownership, property ownership and security of tenure are keys to the continued transformation of the South Africa economy.
Making property ownership more accessible could close the wealth gap between black and white people. Making home ownership more affordable would go a long way in transforming the discussion about land reform.
A number of important things were suggested at the summit that would help further democratise real estate holdings in South Africa. One fairly easy thing to do was recommended by former president Kgalema Motlanthe, who, in 2015, headed a high-level government panel focused on ways to further fundamental change in the country. He noted that a significant number of urban dwellers around the country occupy land to which they don’t have title deeds. With title, the people who occupy such properties would then have the possibility of monetising those assets for their benefit.
The remedy to this situation is simple: give them title deeds. This is something that could, literally, be done with the stroke of a pen.
Another thing that could have a substantial effect in expanding property ownership opportunities was one I raised in my presentation at the summit.
One of the keys to creating greater homeownership opportunities is to make more mortgage money available across more income classes. Although South Africa has one of the more mature and robust mortgage markets in Africa, it is principally funded by long-term deposits held by financial institutions. The net effect is that the amount of money available for mortgage lending is determined by the amount of those deposits and is further limited by the extent to which other sectors compete for those funds.
What would significantly boost the amount of money available to potential homeowners is the creation of a secondary market. Creating a mechanism that would allow banks to access long-term financing for home loans would increase the supply of funds available for mortgage lending. With an increase in the pool of capital, interest rates should drop. With more money available at a cheaper price, homeownership will be available to a lot more people.
A third thing that can be done to expand homeownership to those currently out of the market is to build on what the summit has begun. It would be an oversimplification to suggest that land reform, restitution and redistribution of land can be done by simply reforming the real estate sector. But without input from the multiple players in the real estate industry the challenges the country faces relative to land reform can’t be overcome.
The summit represented an excellent effort to bring all of the critical players to the table. If industry leaders and political leaders commit and continue to do all that they can to put home and property ownership within reach for all who desire to do so, they can make a difference. This means that gatherings like the summit can’t be a one-time conversation or a one-off gathering.
The current maldistribution that defines the property space in South Africa didn’t get this way overnight, which means it can’t be rectified overnight. If this combination of actors continues to come together, the demographics that currently define this space can become more reflective of the demographics of the country. What this means is that while this real estate industry summit was the first, South Africa can’t afford for it to be the last, if more South Africans are to become, literal, stakeholders in their country.
Charles R Stith, an African-American businessman based in Johannesburg, served as the United States envoy to Tanzania during the Clinton administration. He is chairperson of The Pula Group and board chair of the Johannesburg-based African Presidential Leadership Centre