Kecia Rust Centre for Affordable Housing Finance in Africa, a division of the FinMark Trust kecia@iafrica.com

1. Kecia Rust Centre for Affordable Housing Finance in Africa, a division of the FinMark Trust kecia@iafrica.com Considering the potential of the affordable housing market Session 4: Residential Property – the birth of a new formal asset class? The 9th Annual IPD Property Investment Conference: Expanding Horizons 28 & 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 properties2. Growing more quickly than the high value market3. 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 The al+hdc is a partnership initiative between FinMark Trust, Urban LandMark, Eighty20, and Lightstone. • 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

4. The affordable market is: 1. the largest property market in South Africa, with the most people and the most properties

5. Affordable vs. High value market properties by province: all residential properties 2,000,000 1,800,000 High value market (>R500 000) 1,600,000 Affordable market properties (<R500 000) 1,400,000 1,200,000 1,000,000 800,000 600,000 400,000 200,000 - LIMPOPO GAUTENG FREE STATE NORTH WEST MPUMALANGA EASTERN CAPE WESTERN CAPE KWAZULU NATAL NORTHERN CAPE 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.

6. 6 Market size. 58% of properties, but 88% of the population. This includes subsidy beneficiaries. Affordability for a R500k mortgage Gap market 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 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 houses 2000’s BNG houses Subsequent home improvements

8. 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. • Sectional title walkups & flats • New, “gap market” • Old, depressed areas • Inner city & township • Subdivisions • Improved RDP houses

9. Where are they? Just under half (47%) of the affordable market is found in former-black townships Township properties: affordable and high-value 80.00% % of affordable market (<R500 000) properties in townships 70.00% % of high value market (>R500 000) properties in townships 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% LIMPOPO GAUTENG FREE STATE NORTH WEST MPUMALANGA EASTERN CAPE WESTERN CAPE NORTHERN CAPE KWAZULU NATAL 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.

10. What tenure types?Very few (4%) properties in the affordable market are in Sectional Title schemes. Sectional Title Schemes: affordable and high value 35.00% % of affordable market (<R500 000) properties in Sectional Title schemes 30.00% % of high value market (>R500 000) properties in Sectional Title schemes 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% GAUTENG KWAZULU WESTERN EASTERN FREE STATE NORTH WEST MPUMALANGA NORTHERN LIMPOPO NATAL CAPE CAPE CAPE However, 20% of all Sectional Title properties in South Africa are in the affordable market (142 149 properties). Watch this space!

11. First 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.

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.

13. 2. growing more quickly than the high value market The affordable market is:

14. 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.

15. 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.

16. 3. the target of growing investment The affordable market is:

17. The state has invested hugelyin 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

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

19. Investment & market opportunities • Undersupply of affordable housing • Property facilitation services • Infrastructure financing & management

20. Gross undersupply of truly affordable housing 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 Walk-ups, flats, Sectional title, employer-linked. Pitch at R3500 – R10 000, so property price from R150k

21. Property facilitation: find the economies of scale Estate agency & market information E-conveyancing Web technology Conveyancing Property management Home improvements, valuations, savings Franchise models Market logistics The majority of buyers find their house by word of mouth.

22. Infrastructure New suburbs & cities Upgrading of existing areas for densification Long term financing & innovative repayment methods – toll road model

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

24. THANK YOU!For more information: www.alhdc.org.zaEmail: info@alhdc.org.zaKecia Rust, FinMark Trust: 083 785 4964Rob McGaffin, Urban LandMark: 082 534 2113Hayley Ivins, Lightstone: 083 306 3345IllanaMelzer, Eighty20: 083 271 3764