HOUSING FINANCE PUBLIC HEARING. 13/14 October 2011

Transcription

1 HOUSING FINANCE PUBLIC HEARING 13/14 October 2011

2 FINANCIAL SECTOR CHARTER (FSC) 2

3 FINANCIAL SECTOR CHARTER 3 The Financial Sector Charter will add a deep social dimension to the functioning of our financial system. It goes to the core of how the financial sector will address the urgent need to make business sense of a more sustainable, inclusive and equitable future. At the same time, measures designed to achieve our empowerment & transformational goals must be implemented in such a way that they do not jeopardise ongoing financial stability (Extract from the Trevor Manuel presentation to Financial Sector Campaign Coalition 2005)

4 FINANCIAL SECTOR CHARTER THE CATALYST 4 Concluded in October 2003 FINANCIAL SECTOR CHARTER First measurement period 1 January 2004 to 31 December 2008 Human Resource Develop ment (22) Procurement (15) Enterprise Development Access To Financial Services (18) Ownership & Control in Financial Sector (14) Corporate Social Investment (3) Empowerment Financing Geographic Access Transacti on & Savings Accounts Mzansi Consumer Education (2) BEE Tranaction Financing (5) Low Income Housing Agricultural Development SMEs Infrastruc ture Empowerment Finance (21)

5 FSC EMPOWERMENT FINANCE (HOUSING) COMMITMENTS 5 FSC PERIOD: 1 JANUARY 2004 TO 31 DECEMBER HOUSING FINANCE (MORTGAGES, SECURED/PARTLY SECURED, UNSECURED HOUSING PERSONAL LOANS, RESIDENTIAL DEVELOPMENT LOANS, WHOLESALE LOANS) ORIGINATION TARGET - GROSS SALES TARGETTED INVESTMENTS TARGET - BALANCE OUTSTANDING ON LOANS AS AT 31 DECEMBER 2008 ORIGINATION TARGET 4 MAJOR MORTGAGEES OTHER LENDERS TOTAL R 40 BILLION R 2 BILLION R 42 BILLION TARGETTED INVESTMENTS TARGET (ACTUAL: R31.8 BN) 4 MAJOR MORTGAGEES R 30 BILLION OTHERS R 2 BILLION TOTAL R 32 BILLION TARGET MARKET: HOUSEHOLD GROSS MONTHLY INCOME BETWEEN R1500 AND R7 500 (2004) ADJUSTED ANNUALLY BY CPIX (R1 928-R9 670 IN 2008)

6 ACHIEVEMENTS (VALUE) 6

7 ACHIEVEMENTS (VALUE) 7

8 Figure 12 Low Income Housing INTEREST RATE VOLATILITY 8 AFFORDABILITY IMPACT : AVERAGE MIDDLE INCOME HOUSEHOLD HAD LOST 42% OF THEIR SPENDING POWER IN 2008 (SA PERFECT STORM INTEREST RATE, FUEL, ELECTRICITY, UTILITIES, FOOD, TRANSPORT SPIKES)

9 AFFORDABILITY IMPACT (5% INTEREST RATE INCREASE) 9 Household income Housing affordability prior to interest change Housing affordability after interest change Note: Average minimum entry level price for bonded units is R and so FSC target market for mortgages is now obsolete

10 INCOME PROFILE 10 Households (%) by Household Income Category % 5.66% FSC Target Market Income Category (Monthly) % 6.74% 6.82% 7.17% 7.04% 8.96% 11.64% Primary 5% Resale 13% Extensions 19% Home Improvements 33% % 8.54% 7.40% 4.84% 5% INCREASE IN INTEREST RATES = R356 EXTRA p.m. PER R BOND OR 26% DECREASE IN AFFORDABILITY 0.00% 2.00% 4.00% 6.00% 8.00% 10.00% 12.00% 14.00% Number of Households (as %) Source: Global Insight

11 ARREARS 11

12 ARREARS PER SEGMENT 12

13 PRODUCT MIX (4 MAJOR MORTGAGEES) VALUE 13

14 TARGETTED INVESTMENT (4 MAJOR MORTGAGEES) 14

15 ACHIEVEMENTS (NUMBER) 15 Fully Residential Wholesale & Period Mortgage Guaranteed Unsecured Development Social Total Total

16 TARGET MARKET ADJUSTMENT 16 Entry housing from R upwards Alignment to draft DHS Inclusionary Housing definition (FSC +40%) 2011: Gross household income ceiling R adjusted annually by the midpoint between CPI and BCI (equates to a mortgage bond of +- R )

17 ACHIEVEMENTS (VALUE) 17

18 ACHIEVEMENTS (VALUE) 18

19 ACHIEVEMENTS (VALUE) 19

20 ACHIEVEMENTS (NUMBER) 20

21 ACHIEVEMENTS (NUMBER) 21

22 LESSONS LEARNT 22 HOUSING SUPPLY, NOT FINANCE IS THE ISSUE DESPERATE NEED FOR AFFORDABLE NEW BUILDS WITHIN TARGET MARKET NEED FOR KEY PLAYER PARTNERSHIPS INCLUDING COMMITMENTS FSC TARGET MARKET IS COMMERCIALLY VIABLE (HAS BECOME INSTITUTIONALISED WITHIN MEMBER BANK STRUCTURES) DIFFERENTIATED SEGMENTATION APPROACH NEEDED (INCLUDES OPERATING MODEL) AFFORDABILITY AND CREDIT TRACK-RECORDS ARE KEY BORROWER EDUCATION IS ALSO KEY HUMAN SETTLEMENT APPROACH NEEDED (INFRASTRUCTURE BLOCKAGE) AVOID SUB PRIME TRAP AFFORDABLE LONG TERM FIXED INTEREST RATE ESSENTIAL REGULATORY AND THINNESS OF MARKET IMPEDIMENTS CREDIBLE MARKET MAKER

23 UNDERSTANDING THE MARKET 23 R3.5/R12k: Backlog: 1 million units 20% of workers (was in 2004) BNG (subsidy): Backlog: 2.3 million units was 1.2 million in 1994 Informal settlements: were 300 in 1994 now Source: Finmark Trust

24 AFFORDABILITY GAP GAUTENG 24 Source: South African Institute for Race Relations

25 GROWTH IN BUILDING COSTS m 2 FOR AFFORDABLE HOUSING UNITS Average increase of 28% 1700 R/m Jan 2007 Jan 2008 Jan 40m 2 unit 50m 2 unit 60m 2 unit 70m 2 unit 80m 2 unit Source Viruly Consulting

26 DEVELOPER PROFITABILITY (2008) 26

27 INFRASTRUCTURE COST INCREASES (2008) 27

28 COST/SUBSIDY SHORTFALL BNG UNIT Item Actual cost Subsidy limits Variance Raw land assembly R (R24,4m2) R R100 Township Proclamation R R Land servicing* R A-grade services R B-Grade services -R Professional fees R R R1 069 Statutory Approvals/ Enrolment R R R4 082 Top structure R R R5 527 Profit R24 100(17%) R 1 833(2%) -R Total Cost Unit R144,800 R R55,683

29 29 LOANS, SUBSIDY & SUBSIDY SHORTFALL 2008 Loans, Subsidy & Subsidy Shortfall 200, , , , ,000 Shortfall in govt subsidy 75,000 50,000 25,000 +HH affordability - Loan Subsidy Cost of Marketable top structure what paying hhs will accept- 0 1,500 2,000 2,500 3,000 3,500 4,000 4,500 5,000 5,500 6,000 6,500 7,000 7,500 8,000 8,500 9,000 9,500 10,000 Income per household

30 WHERE ARE WE? 30 Chart A Monthly Household Income Distribution (Source: Adapted from Rust, 2009) 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Households per Incom e Band 992,697 9% 637,311 5% 522,121 4% 2,296,955 18% 3,539, % 4,469,158 36% 7% of South African adults are mortgage holders 45% have formal property title but no mortgage 24% only have informal title 24% rent 18% of households can only afford to buy a new home R R12001 R18000 R9001 R12000 R3501 R9000 R1501 R3500 <R1500

31 UNDERSTANDING THE MARKET 31

32 HOUSEHOLD DEBT TO DISPOSABLE INCOME 32

33 UNDERSTANDING THE MARKET 33 SOURCE: ABSA SOURCE: SARB

34 AFFORDABILITY GAP 34

35 WHERE ARE WE? 35

36 WHERE ARE WE (CONT)? 36

37 WHERE ARE WE (CONT)? 37 Source: World bank

38 CAN BANKS DO MORE? ABSOLUTELY (COMPETITION, INNOVATION, PARTNERSHIPS, CHANGE SUBSIDY MODEL TEMPORARY BENEFICIARIES, REDUCE MINIMUM STANDARDS FOR SUBSIDY HOUSING, LENDERS TO FINANCE BNG SPEC UNITS?) BUT NOT SUB PRIME (USA LESSON). BANKS HAVE FIDUCIARY RESPONSIBILITY (DEPOSITORS, INVESTORS MONEY AT RISK) MEANINGFUL HONEST PARTNERSHIP (GOVT. (3 TIERS), DEVELOPERS, SELECTIVE EMPLOYERS, LENDERS, MATERIAL SUPPLIERS) INFRASTRUCTURE RETHINK? DELIVERY MODEL DENSIFICATION (SPRAWL COSTS PLUS PROMOTES INCOME APARTHEID) INFORMAL SETTLEMENTS SOLVENCY OF MUNICIPALITIES (9% PROPENSITY TO BORROW) DFIS/TREASURY REGULATORY REFORM 5 YEARS RAW LAND TO HOME (REDUCE COST OF HOME 16% IF HALVE TIME) CONSUMER CHOICE (PRE-OCCUPATION WITH OWNERSHIP SHIFT TOWARDS RENTAL, INFORMAL SETTLEMENT TENURE SECURITY, HOUSING MICRO FINANCE INCREMENTAL APPROACH WIDTH OVER DEPTH ) PUT CONSUMER BACK INTO DRIVING SEAT (HUMAN SETTLEMENT APPROACH BRAZILIAN TYPE MODEL?) 38

39 CAN BANKS DO MORE? (CONTINUED) 39 CONSTRAINTS AFFORDABILITY Need to holistically address affordability gap Home-ownership subsidy programmes including FLISP review R1 billion guarantee fund will only partly address affordability shortfall (need for a bouquet of interventions) Over-indebted consumers with blemished credit track-records Affordable long term fixed interest rate DISPROPORTIONATE INCREASES IN ADMINISTRATIVE COSTS STRIPPING DISPOSABLE INCOMES, SLOWING GDP AND STARTING TO EVEN THREATEN HOME-OWNERSHIP AS AN ACHIEVABLE PRIORITY WORLD ECONOMIC TURMOIL IMPACT ON LENDER AND CONSUMER CERTAINTY AND HENCE INVESTOR CONFIDENCE BASEL III (2017) : MATCH LONG TERM ASSETS WITH QUALITY LONG TERM DEPOSITS TO DISINCENTIVISE MORTGAGEES (COST OF FUNDS, LIQUIDITY) SUPPLY, SUPPLY, SUPPLY

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