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Gap housing market needs major attention – Deputy Minister of Finance

Despite government making good progress with a number of initiatives to enable greater access to affordable housing opportunities, much work remains, says Deputy Minister of Finance Musa Nene. And, he says, the private sector can and should play a significant role in making such opportunities a reality.


The plight of the “gap market” was given prominence by President Jacob Zuma in his state of the nation address last year and again this year. The gap – or affordable market - refers to people who earn too much to qualify for government-subsidised housing and but not enough for homes in the traditional private market. Additionally, there is a major lack of available stock in this sector.


Delivering the keynote address at the recent investor conference of global private equity funder International Housing Solutions (IHS) in Johannesburg, Nene pointed out that the transformation of human settlements and spatial development - to create the conditions for more humane and environmentally sustainable living and working environments - was a key component of South Africa’s growth and employment-focused National Development Plan (NDP). Urgently addressing the needs of the “gap market” was, in turn, a central part of this, he said.


As a pioneer of affordable housing development in Southern Africa, IHS has thus far successfully placed R1.9 billion in equity funding enabling the construction of 27,000 affordable housing units in South Africa. The company’s latest conference was attended by major local and global investors drawn to the potential of the sector.


Nene sketched the ongoing fragility of the global economy and its growth prospects. He again pointed out that South Africa is not immune to the poor growth outlook and referred to the country’s revised growth outlook. In his latest budget speech, finance minister Pravin Gordhan said GDP growth was expected to be 2.7 per cent in 2013, rising to 3.8 per cent in 2015.


“But we require much faster and sustained growth to address our socio-economic challenges,” said Nene. The government’s plan to improve GDP growth, create jobs and eradicate poverty is captured in the NDP, of which the transformation of human settlements is a key element, he said.


“Although our budget forecasts might require some downward revision, we expect that a rebound in private sector investment and the improved capacity from higher government spending on infrastructure will raise growth levels from 2014 onwards.”


According to Nene the 2011 Census showed that 78.4 per cent of South Africa’s 14.5 million households live in formal housing.


The government-subsidised housing programme has provided housing opportunities to over 20 per cent of the population. The home ownership rate, confirmed by the census, is 53 per cent.


“The census also confirmed that the lowest home ownership rates are among households who have no income (48 per cent ownership) and households with a monthly income between R3 200 and R6 300 per month (49 per cent ownership),” said Nene.


While government is addressing the plight of the poorest segment, Nene also referred to the various initiatives launched by government to enable more households in the “gap market” segment to obtain houses.


One of these is the Finance Linked Individual Subsidy Programme of the Department of Human Settlements announced by President Zuma last year. In his most recent state of the nation address Zuma reported that in 2012 provincial departments committed a budget of R126-million of the Human Settlements Development Grant for this programme. Some R70-million has already gone to twelve registered projects while a further eight gap housing projects are currently underway.


In his budget speech Minister Gordhan again reiterated that South Africa is a rapidly urbanising society with 62 per cent of its people living in cities and towns and needs to meet urgent demand for housing, among other things. He announced that funding for improving human settlements was to be increased from R26.2-billion to R30.5-billion over the next three years.


Other initiatives to support mechanisms to increase the supply of affordable housing listed by Nene include the Urban Settlements Development Grant introduced to metropolitan municipalities in 2011, the Cities Support Programme and tax incentives to developers building houses with a sale value of up to R300 000 per house.


To overcome the resistance among banks to granting loans to this segment, the national treasury and the department of human settlements are also working together to find credit enhancement mechanisms that would assist households in this respect.


“As government, we want to create the conditions for more humane and environmentally sustainable living and working environments,” said Nene.

Referring to the achievements of IHS in South Africa in developing the affordable housing market, Nene said: “This is the kind of commitment we want to see from the private sector.”


He warned against the “many naysayers” saying it was “easy to get caught up in the immediate negative headlines and environment” and avoid investing in South Africa. Yet South Africa remained a “worthy and attractive investment destination”, he said.


Adding her voice to Nene’s, Soula Proxenos, managing partner at IHS, says Private Equity investment is key to Africa as public markets are not well developed.


“Private equity is an ideal way to build up capacity, capitalise young business and drive large entities," Proxenos says.

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