House affordability is a major concern in the current market...

South African banks are increasingly looking to the affordable housing sector in a bid to reverse skyrocketing mortgage decline rates.

Speaking at the latest International Housing Solutions’ Affordable Housing Conference, senior bank representatives said affordability was a major concern in the current market.

With home ownership on the decline, as noted in recent reports, banks remained keen to lend. However applicants were advised to ensure they did not set their sights unachievably high when seeking their first home loans.

Also speaking at the conference was Dominic Adu, CEO of Ghana Home Loans, who said mortgage decline rates in that country stood at an extraordinary 90% - primarily because applicants applied for too expensive properties and, if they could not buy them, they would rather not buy at all.

“People want homes they can’t afford,” he said.

And the desire to purchase a higher-end property than is realistic could also, in addition to other issues such as consumer-indebtedness, explain SA’s high mortgage decline rates, the conference was told.

Nicholas Nkosi of Standard Bank said the biggest reasons for the bank’s current decline rate of new mortgage applications, was credit information and affordability.

“A larger number of clients are being turned down due to their credit information, but affordability is playing a bigger role,” he said.

Nkosi added that while there was significant pressure in terms of delinquency in servicing bonds, this applied across the mortgage book. “It is positive that delinquency is not unique to affordable housing, and that the affordable housing customer is not performing worse.”

Marius Marais of FNB said the bank’s affordable book stood at about 20-25% of market share, and that the bank’s decline rates could for the most part be attributed to reasons of affordability.

Representatives from all the major banks agreed that customer education was key, especially in the affordable space, where clients often did not understand the amount of additional spend required when buying property, such as insurance, transfer duties, and rates and taxes.

Soula Proxenos, Managing Partner at IHS, said it was encouraging that the affordable housing sector was fast becoming recognised for its potential to address challenges in the property market.

“Our approach has always been to be able to provide a quality first step onto the private property ladder, and both the private and public sector are acknowledging the role the affordable sector has to play,” she said.

Approximately 200 developers this month joined thought leaders in government, the private sector and the major banks at the 2013 International Housing Solutions Developer Conference to discuss prospects offered by building housing and sustainable communities for middle-income earners.

In addition to banks’ desire to grow their mortgage base in this market, Southern African developers are increasingly looking to affordable housing when deciding on future projects, as a result of the continued growth and success of the sector..

Titled “Meeting the Demand”, this year’s conference focused on analysing the latest data and trends in housing in Southern Africa, highlighting government’s support of the sector, feedback on improved end user finance and the development and construction of affordable housing.

The conference came in the wake of the announcement of massive investment by the National Housing Finance Corporation and IFC, a member of the World Bank Group’s, into IHS’s second fund, IHS Fund II.

With its first fund, the SA Workforce Housing Fund, IHS provided financing for more than 28 000 housing units with a combined total value of more than R8.6 bn, providing tangible positive social impact for the people living in IHS developments. A pioneer fund manager in recognising the potential of developing affordable housing in developing markets, IHS opened up a valuable new sector for its investors while helping thousands of families to afford a home of their own and start their journey to wealth creation through property ownership.

The global private equity investor has, through the SAWHF, committed more than R 2bn to providing affordable housing in emerging markets while generating superior risk-adjusted returns.

Michael Otto

Home Loan Sales Consultant | Nedbank Home Loans