The difficulties of owning property in SA
Johannesburg - As South Africa celebrates Human Rights Day (March 21), we are once again reminded of Section 26 of the South African Constitution.
It states that everyone has a right to have access to adequate housing. However, in South Africa consumers are sinking in debt worth R1.9 trillion. Therefore, it’s becoming increasingly difficult to afford to buy a property.
According to the United Nations (UN), adequate housing is defined within the Global Strategy as "adequate privacy, adequate space, adequate security, adequate lighting and ventilation, adequate basic infrastructure, and adequate location - all at a reasonable cost."
In South Africa, however, financial institutions check consumer’s affordability in line with the National Credit Act standards, and due to the high unemployment rate, banks remain cautious.
According to Statistics South Africa, the unemployment rate stood at 32.5 percent in the October-December 2020 quarter, meaning, 7.2 million people were unemployed, up from 30.8 percent in the previous three months.
In the latest available FNB property barometer report, economist Siphamandla Mkhwanazi said in 2020, banks approved fewer home loans, even as interest rates were low.
“Industry-wide data continues to show robust home-buying activity. 2020 is set to register the highest volume of mortgage approvals in over a decade. This is despite relative caution from lenders: approval rates were lower in 2020 compared to 2019.”
According to Stats SA, over a third of South Africans own their homes.
Some of the owners include households that have received some kind of government subsidy to access housing. 13,1% of households were still living in informal dwellings in 2018.
“This could be attributed to the fact that rapid household growth and population relocation is making it very difficult to address existing backlogs in the face of fresh demands,” said Stats SA.
For FNB, even though their House Price Index shows annual house prices appreciated in February, on a month-on-month basis, however, price growth continues to slow, likely reflecting the tapering of interest rate-induced demand.
“This is consistent with Estate Agents Survey data, which showed still strong but slowing buyer demand, mainly in the middle-priced market. Forward-looking indicators suggested slowing demand in 1Q21, with only 37% of surveyed agents expecting volumes to increase from 4Q20 levels,” said Mkhwanazi.
Standard Bank, which has the biggest share of South Africa’s home loan market, reported that its total home loan book in South Africa was sitting at R378.1 billion (out of a total group book of R399 billion) in 2021.
“Of the group figure, it has booked an impairment charge of R4.132 billion in the South African home loan portfolio, and R4.372 billion for the group. This represents a credit loss ratio of 1.14% for mortgages,” said Standard Bank.
Credit impairments occur when someone’s credit deteriorates, affecting their ability to pay back the credit.
Even with the assistance (Finance Linked Individual Subsidy Programme - FLISP) that the government is providing to first-time homeowners, one needs to first prove financial affordability. It is difficult for South Africans to take advantage of the benefit. Added to this, the application process for FLISP continues to be challenging for many.
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