Kecia RustCentre for Affordable Housing Finance in Africa, a division of the FinMark Trustkecia@iafrica.com

Considering the potential of the affordable housing marketSession 4: Residential Property – the birth of a new formal asset class?

The 9th Annual IPD Property Investment Conference: Expanding Horizons28 & 29 July 2011, Westin Grand Hotel, Cape Town, South Africa

2

The affordable market is:

1. The largest market in South Africa, with the most people and the most properties

2. Growing more quickly than the high value market

3. A target of growing investment

3

A definition

Affordable market:• areas where average value <R500 000• properties where current value <R500 000• includes subsidy market • services about 88.14% of the population

High value market:• areas where average value >R500 000• properties where current value >R500 000• focus of most press reporting • affordable to about 11.86% of the population

The al+hdc is a

partnership initiative

between FinMark Trust,

Urban LandMark,

Eighty20, and

Lightstone.

4

1. the largest property market in South Africa, with the most people

and the most properties

The affordable market is:

5

Market size. The majority (58%) of properties in SA are worth less than R500 000 each.

Of almost 6 million residential properties on the Deeds Registry, 3.5 million are valued at less than R500 000. One million of these are in Gauteng. The Free State has the highest ratio of affordable market to high value market housing, with 83% of its properties worth less than R500 000 each.

Affordable vs. High value market properties by province: all residential properties

-

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1,800,000

2,000,000

GAUTENG

KWAZULU

NAT

AL

WES

TERN C

APE

EAST

ERN C

APE

FREE

STA

TE

NORTH W

EST

MPU

MALA

NGA

NORTHER

N CAPE

LIMPO

PO

High value market (>R500 000)

Affordable market properties (<R500 000)

6

At current rates, a household earning R16000 should be able to afford the repayments for a R500k mortgage. So, households earning <R16000 (88% of the population) are in the affordable market.

Subsidy market

Gap

market

Market size. 58% of properties, but 88% of the population. This includes subsidy beneficiaries.

Affordability for a R500k mortgage

Typology: 25% of all properties on the deeds registry are subsidised – the remaining 33% of the affordable market is not.

7

<R250 000

55 366 registered in 2010 (75% of total registrations)

Targeted at 60% of SA population

Primarily government subsidised housing (25% of all properties on deeds registry).

An estimated 2.9 million built or under construction across South Africa since 1994: freehold tenure, 40m2 unit on 250m2 land, available for resale after 8 years.

Today, 1,1m units legally entitled to sell (pre-2003 stock)

1990’s RDP houses2000’s BNG houses

Subsequent home improvements

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• Sectional title walkups

& flats• New, “gap market”• Old, depressed areas• Inner city & township• Subdivisions• Improved RDP houses

R250 000 – R500 000

6 252 registered in 2010 (9% of total registrations)

Targeted at about 28% of SA population

So-called “gap market” housing.

Includes some improved RDP units

Banking Association estimated a backlog of over 625 000 in 2005. Less than 20 000 / year built since.

9

Where are they? Just under half (47%) of the affordable market is found in former-black townships

While townships are almost entirely affordable (townships are also home to about 34 000 high value properties), they hold less than half the total number of affordable properties in the country. Other areas might be new subsidy settlements, or older property areas that have gone through a slump or have not yet gentrified. New build is also increasingly in the affordable bracket.

Township properties: affordable and high-value

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

80.00%

GAUTENG

KWAZULU

NAT

AL

WES

TERN C

APE

EAST

ERN C

APE

FREE

STA

TE

NORTH W

EST

MPU

MALA

NGA

NORTHER

N CAPE

LIMPO

PO

% of affordable market (<R500 000) properties in townships

% of high value market (>R500 000) properties in townships

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What tenure types? Very few (4%) properties in the affordable market are in Sectional Title schemes.

However, 20% of all Sectional Title properties in South Africa are in the affordable market (142 149 properties). Watch this space!

Sectional Title Schemes: affordable and high value

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

GAUTENG KWAZULUNATAL

WESTERNCAPE

EASTERNCAPE

FREE STATE NORTH WEST MPUMALANGA NORTHERNCAPE

LIMPOPO

% of affordable market (<R500 000) properties in Sectional Title schemes

% of high value market (>R500 000) properties in Sectional Title schemes

11First time buyers. The majority of properties in South Africa

are owned by first time buyers. The percentage is much higher in the Affordable market and in low-value properties.

First time buyers are new entrants into the property market – in time, they will become second and third time buyers as their equity situation improves. They are the future of the property market and represent opportunities for growth.

<R250K R250k-R500K >R500K <R250K R250k-R500K >R500KGap market areas (<R500 000) 'Regular' market areas (>R500 000)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%% Of Property Owned By 1st time Buyers

12

Primary residences. The majority of properties in South Africa are owned by people who do not own any other property. The proportion drops in ‘high value’ market areas, especially for low-value properties.

The flipside of this graph suggests investment properties. A significant proportion of low-value properties in ‘high value’ areas, and over 10% of properties in Affordable market areas are owned by people who also own other properties.

<R250K R250k-R500K >R500K <R250K R250k-R500K >R500KGap market areas (<R500 000) High value' market areas (>R500 000)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

% Properties That Are Primary Residences (i.e. Owner does not currently Own Any Other Property)

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2. growing more quickly than the high value market

The affordable market is:

0

2000

4000

6000

8000

10000

12000

14000Total resales registered per month, by market segment

(Jan – Dec 2010)

>R3 million

R1,5 million - R3 million

R700,000 - R1,5 million

R500,000 - R700,000

R250,000 - R500,000

R100,000 - R250,000

R10,000 - R100,000

R100 - R10,000

<R100

14

17,861(14%)

30,508 (24%)

20,598 (16%)

40,879 (33%)

12,528 (10%)

3516

Total resales (existing houses sold) in 2010, by market segment

Resale market: Most activity happening in the R700k – R1,5m market, but affordable is significant at about 38%. One quarter of resales are in R250k-R500k range.

New build: Affordable dominates. This is the impact of the government subsidised housing programme (75% of all delivery in 2010), but also includes gap market housing: 9% of all delivery.

15

2010-01

2010-02

2010-03

2010-04

2010-05

2010-06

2010-07

2010-08

2010-09

2010-10

2010-11

2010-12

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

Total new houses registered per month, by market segment (Jan - December 2010)

>R3 million

R1,5 million - R3 million

R700,000 - R1,5 million

R500,000 - R700,000

R250,000 - R500,000

<R250,000

55,366 6,252

3,995

5,216

1,588

1,170

Total new houses registered in 2010, by market segment

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3. the target of growing investment

The affordable market is:

The state has invested hugely in affordable areas

Housing subsidies: Human Settlement conditional grant to provinces & municipalities of over R18 bn annually Bulk & link infrastructure

Land packaging

Top structure

New towns

Township renewal: 90 awards in 57 municipalities are under management to the value of R8,82 billion

Transport nodes & infrastructure connecting townships to cities, links between cities

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Among the big 4 banks, affordable market mortgages hover at about 30% of total book size, by number, but less than 5% by value

18

ABSA STANDARD FNB NEDBANK NHFC INTEGER INVESTEC SAHL OTHER OTHER BANK

Unknown0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

169,981 154,620 115,765 133,401

687

207

1,222

18,156

72,574 25,078 9,371

476,115 336,490 253,035 236,832

367

823

28,521

71,595

34,297 9,989 4,461

Proportion of affordable market vs. ’high value' market mortgage loans, by lender (Oct 2010)

Regular' market (>R500 000): all bands Affordable market (<R500 000): all bands

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Investment & market opportunities

Undersupply of affordable housing

Property facilitation services

Infrastructure financing & management

Freehold: new housing typologies

• Affordable market landlords see insatiable demand: inner cities, townships

• Employer housing opportunities

• Backyard & small scale rental – financing & management supoprt. Landlords’ collective?

Rental: diverse institutional forms

• Land packaging through subdivisions or stands

• Repossessions: opportunity for densification

Land, subdivisions & managed incrementalism

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Gross undersupply of truly affordable housing

• Walk-ups, flats,

• Sectional title, employer-linked.

• Pitch at R3500 – R10 000, so property price from R150k

Estate agency & market information

• E-conveyancing

• Web technology

Conveyancing

• Property management

• Home improvements, valuations, savings

• Franchise models

Market logistics

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Property facilitation: find the economies of scale

The majority of buyers find their house by word of mouth.

Infrastructure

New suburbs & cities

Upgrading of existing areas for densification

Long term financing & innovative repayment methods – toll road model

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If these are the proportions, how can we not pay attention?

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75% 8%

5%

7%

2%2%

Total new houses registered in 2010, by market segment

<R250,000

R250,000 - R500,000

R500,000 - R700,000

R700,000 - R1,5 million

R1,5 million - R3 million

>R3 million

THANK YOU!

For more information: www.alhdc.org.za

Email: info@alhdc.org.za

Kecia Rust, FinMark Trust: 083 785 4964Rob McGaffin, Urban LandMark: 082 534 2113Hayley Ivins, Lightstone: 083 306 3345Illana Melzer, Eighty20: 083 271 3764