HOUSING FINANCE PUBLIC HEARING 13/14 October 2011
FINANCIAL SECTOR CHARTER (FSC) 2
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)
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)
FSC EMPOWERMENT FINANCE (HOUSING) COMMITMENTS 5 FSC PERIOD: 1 JANUARY 2004 TO 31 DECEMBER 2008 2012-2017 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)
ACHIEVEMENTS (VALUE) 6
ACHIEVEMENTS (VALUE) 7
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)
AFFORDABILITY IMPACT (5% INTEREST RATE INCREASE) 9 Household income Housing affordability prior to interest change Housing affordability after interest change 5 000 100 162 73 862 6 000 120 194 88634 7 000 140 227 103 406 8 000 160 259 118 179 9 000 180 292 132 951 10 000 200 325 147 723 Note: Average minimum entry level price for bonded units is R250 000 and so FSC target market for mortgages is now obsolete
INCOME PROFILE 10 Households (%) by Household Income Category 2006 30 001+ 16001-30000 7.58% 5.66% FSC Target Market Income Category (Monthly) 11001-16000 8001-11000 6001-8000 4501-6000 3501-4500 2501-3500 1501-2500 6.27% 6.74% 6.82% 7.17% 7.04% 8.96% 11.64% Primary 5% Resale 13% Extensions 19% Home Improvements 33% 1001-1500 501-1000 201-500 0-200 11.32% 8.54% 7.40% 4.84% 5% INCREASE IN INTEREST RATES = R356 EXTRA p.m. PER R100 000 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
ARREARS 11
ARREARS PER SEGMENT 12
PRODUCT MIX (4 MAJOR MORTGAGEES) VALUE 13
TARGETTED INVESTMENT (4 MAJOR MORTGAGEES) 14
ACHIEVEMENTS (NUMBER) 15 Fully Residential Wholesale & Period Mortgage Guaranteed Unsecured Development Social Total 2004 57 324 56 106 40 660 2 35 124 189 216 2005 53 159 58 787 51 720 39 45 974 209 679 2006 43 721 59 635 30 736 166 53 677 187 935 2007 55 287 38 212 94 265 88 33 023 220 875 2008 25 147 44 605 98 571 107 8 596 177 025 Total 234 638 257 345 315 952 402 176 393 984 730
TARGET MARKET ADJUSTMENT 16 Entry housing from R250 000 upwards Alignment to draft DHS Inclusionary Housing definition (FSC +40%) 2011: Gross household income ceiling R15 738 adjusted annually by the midpoint between CPI and BCI (equates to a mortgage bond of +- R375 000)
ACHIEVEMENTS (VALUE) 17
ACHIEVEMENTS (VALUE) 18
ACHIEVEMENTS (VALUE) 19
ACHIEVEMENTS (NUMBER) 20
ACHIEVEMENTS (NUMBER) 21
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
UNDERSTANDING THE MARKET 23 R3.5/R12k: Backlog: 1 million units 20% of workers (was 600 000 in 2004) BNG (subsidy): Backlog: 2.3 million units was 1.2 million in 1994 Informal settlements: were 300 in 1994 now 2 300 Source: Finmark Trust
AFFORDABILITY GAP GAUTENG 24 Source: South African Institute for Race Relations
GROWTH IN BUILDING COSTS m 2 FOR AFFORDABLE HOUSING UNITS 25 2000 1900 1800 Average increase of 28% 1700 R/m2 1600 1500 1400 1300 1200 2006 Jan 2007 Jan 2008 Jan 40m 2 unit 50m 2 unit 60m 2 unit 70m 2 unit 80m 2 unit Source Viruly Consulting
DEVELOPER PROFITABILITY (2008) 26
INFRASTRUCTURE COST INCREASES (2008) 27
COST/SUBSIDY SHORTFALL BNG UNIT 2008 28 Item Actual cost Subsidy limits Variance Raw land assembly R 6 100 (R24,4m2) R6 000 -R100 Township Proclamation R10 300 -R10 300 Land servicing* R34 500 A-grade services R22 162 B-Grade services -R12 338 Professional fees R 4 700 R 3 630 -R1 069 Statutory Approvals/ Enrolment R 5 700 R 1 617 -R4 082 Top structure R59 400 R55 706 -R5 527 Profit R24 100(17%) R 1 833(2%) -R22 267 Total Cost Unit R144,800 R89115 - R55,683
29 LOANS, SUBSIDY & SUBSIDY SHORTFALL 2008 Loans, Subsidy & Subsidy Shortfall 200,000 175,000 150,000 125,000 100,000 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
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% 3,539,3 39 28% 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 R18000+ R12001 R18000 R9001 R12000 R3501 R9000 R1501 R3500 <R1500
UNDERSTANDING THE MARKET 31
HOUSEHOLD DEBT TO DISPOSABLE INCOME 32
UNDERSTANDING THE MARKET 33 SOURCE: ABSA SOURCE: SARB
AFFORDABILITY GAP 34
WHERE ARE WE? 35
WHERE ARE WE (CONT)? 36
WHERE ARE WE (CONT)? 37 Source: World bank
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
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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