South Africa


Excerpt from Africa Housing Finance Yearbook 2016


South Africa is one of the largest economies in Africa, and at US$312.80 billion in 2015, is classified as a middle-income country. South Africa has well-developed transportation, IT, and services infrastructure, legislation that supports private investment, a world-class financial sector and a well-diversified economy.  The Johannesburg Stock Exchange was established during the gold rush in 1887, and with a market capitalisation of US$1 trillion at the end of 2013, is now the 19th largest stock exchange in the world, and the largest in Africa.  Historically dominated by mining, the economy is now led by the services sector. Since the 1994 democratic elections, the country has prioritised an extensive social security programme providing social grants and considerable public infrastructure investment.  In 2015/16, a total of ZAR130 billion (US$ 9.1 billion) in social assistance was paid out to about 17 million beneficiaries – about a third of the population.

This notwithstanding, South Africa continues to be one of the least equal economies in the world, with a Gini index of 63.4 in 2011 (the latest year

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Excerpt from Africa Housing Finance Yearbook 2016


South Africa is one of the largest economies in Africa, and at US$312.80 billion in 2015, is classified as a middle-income country. South Africa has well-developed transportation, IT, and services infrastructure, legislation that supports private investment, a world-class financial sector and a well-diversified economy.  The Johannesburg Stock Exchange was established during the gold rush in 1887, and with a market capitalisation of US$1 trillion at the end of 2013, is now the 19th largest stock exchange in the world, and the largest in Africa.  Historically dominated by mining, the economy is now led by the services sector. Since the 1994 democratic elections, the country has prioritised an extensive social security programme providing social grants and considerable public infrastructure investment.  In 2015/16, a total of ZAR130 billion (US$ 9.1 billion) in social assistance was paid out to about 17 million beneficiaries – about a third of the population.

This notwithstanding, South Africa continues to be one of the least equal economies in the world, with a Gini index of 63.4 in 2011 (the latest year with such data).  The country suffers from a high unemployment rate, which in the second quarter of 2016 was 26.6 percent (or 36.4 percent including discouraged job seekers) – a deteriorating position on the previous year and the highest recorded since StatsSA began the Labour Force Survey in 2008.  This is worse among the youth, where 37.5 percent are unemployed. Between the last quarter of 2015 and the first quarter of 2016, the economy shed 355 000 jobs.

Consumer confidence remained low, deteriorating in 2016, largely due to fears about the economy, depreciation of the local currency (the rand), rising prices including petrol, political uncertainty, and social unrest.  The decline in confidence was most significant among low and middle income households. National politics (with a change in leadership in the Finance Ministry) and municipal elections held the nation’s attention in 2016, with challenges to the ruling party, the African National Congress (ANC), culminating in an eight percent loss of popular support nationwide.  Support for the ANC is now the lowest it has been since 1994, and four metro municipalities are now run by other political parties.

The economy contracted by 1.2 percent in the first quarter of 2016.   International Monetary Fund (IMF) projected growth at 0.1 percent for 2016, down from its two percent projection for the year, made in 2015. After declining to 5 percent in 2015 on lower oil prices, inflation jumped to 6.5 percent in early 2016. In 2016, the finance, real estate and business services sector was the largest contributor to the country’s GDP at 18 percent.  The construction industry (contractors) contributes 3.5 percent to GDP.

On the face of it, South Africa has investor friendly policies and regulations, but conditions have been deteriorating and a credit rating downgrade was only narrowly averted in June 2016.  This has brought business confidence to its lowest level in 15 years. In its 2016 Doing Business Report, the World Bank ranked South Africa 73rd overall (down, from 69th in 2015), and fourth in Sub-Saharan Africa, after Mauritius, Rwanda and Botswana. Major declines in its position related to starting a business, dealing with construction permits, and getting credit. South Africa was also ranked first in Sub-Saharan Africa in terms of dealing with construction permits and protecting investors.  And yet, business confidence has been declining and fears of a recession are being expressed in the local media.

Access to finance 

South Africa has a sophisticated banking system with 36 local institutions: 17 registered banks, three mutual banks, two cooperative banks and 15 local branches of foreign banks.  Four banks dominate: Absa Bank, First National Bank, Nedbank and Standard Bank. The capital-adequacy ratio for the banking sector as a whole was 15.2 percent in June 2016, well above the minimum prudential requirement of 10 percent. According to PWC, South Africa remains in the top ten countries globally for the indicator relating to soundness of banks.

Access to financial services has been an explicit area of focus by the government and the financial sector, since the 2003 promulgation of the Financial Sector Charter.  The FSC is now enshrined in legislation, promoting transformation in the ownership and management of the banking industry, as well as increased access to financial services for those previously denied – primarily low-income black South Africans. While the current phase of the FSC does not have explicit housing financing targets, it promotes a broader ‘empowerment financing’ target (housing, SMEs, infrastructure and agriculture) of ZAR48 billion (about US$3.3 billion in 2016).  Banks now segment the housing finance market into two parts – the conventional market, and the affordable market (as defined in terms of the FSC).

The 2015 FinScope survey indicates that 77 percent of the South African adult population is banked and 87 percent are financially included, using some financial product or service from the formal sector. Only 3.4 percent of adults rely exclusively on informal mechanisms to manage their money, versus six percent in 2014.

South Africa has a highly active consumer credit market with 23.88 million credit active consumers at the end of March 2016.  The total outstanding consumer credit book was ZAR1.66 trillion, over half of which (52 percent, or ZAR863.37 billion – US$60.8 billion) was mortgage debt.  There were 1.78 million mortgage accounts (a decline of 2.23 percent on the previous year), of which three percent were 90 days or more in arrears.  Consumer indebtedness continues to be an issue of concern, with only 47.6 percent of consumers being current on their accounts and 40 percent being more than 90 days in arrears, or with adverse listings, judgements or administration orders against them.

The credit indebtedness challenge is likely to be exacerbated by rising interest rates, which rose to 10.5 percent in March 2016.  The key monetary policy interest rate (the repo rate) is currently at seven percent per annum.  Typically, borrowers in the affordable market access mortgages at a premium of two percentage points above the conventional market. An analysis of performance indicates that borrowers in the affordable mortgage market have more erratic payment patterns than borrowers in the conventional market, although the analysis shows no difference in the proportion of borrowers who cease making payments entirely. While mortgage loan providers may charge a premium to off-set higher risk and costs associated with more erratic payment patterns in the affordable market, this premium may well exacerbate the problem as it places an additional financial burden on households with the least affordability, and becomes an ‘access tax’ of sorts.

Consulting firm, Eighty20, has noted that the structure of South Africa’s credit market has changed since 2008, however, and this has impacted substantially on access to housing finance.  Where mortgages accounted for 47 percent of the value of all loans granted in 2008, by 2012, this had reduced to 24 percent.  In 2015, mortgages accounted for 31 percent of all credit granted, followed by secured loans (33 percent).   Unsecured loans, credit card facilities, and short term loans have become much more significant, doubling in value from 21 percent in 2008, to 41 percent in 2012.  By 2015, this segment comprised 34 percent of the value of all loans granted.

At 30.4 percent, South Africa has the highest mortgage to GDP ratio in Africa.  The FSC and South Africa’s income distribution notwithstanding, the majority of mortgages are extended to high income earners.  Of the 164 431 mortgages granted in 2015, the Banking Association reports that 10 074 were directed at the affordable market of households earning less than ZAR20 000 (US$1 408) per month.  Figures differ somewhat with data from the National Credit Regulator (which reports 12 136 mortgages extended to individuals earning less than ZAR15 000 –US$1 056 per month), but the point remains that access to mortgage finance is particularly limited for lower-middle class South Africans.  In the seven years since 2008, the average value of mortgages granted has increased considerably, from ZAR524 600 to ZAR894 400 (US$36 943 to US$62 985), indicating a higher earning borrower. There are multiple reasons for this – the entry level price of new housing is about ZAR352 000 (US$24 789), and household affordability for credit is constrained. In 2008, on the back of the global financial crisis, many banks pulled back from offering 100 percent mortgages.  However, many have subsequently returned to 100 percent lending in the affordable market where the mostly first-time borrowers do not have equity or savings with which to make a deposit.

Meanwhile, there has been some innovation.  In 2016, the Government Employees Housing Scheme was launched with SA Home Loans, providing 30 year mortgages and a discounted rate for government employees paying by salary deduction.  Borrowers can get a 100 percent loan, with three years of interest only payments and bond attorney costs are discounted by 50 percent.  Another lender, Chartwell, offers an instalment sale product that converts to a mortgage loan once the borrower has reached a certain threshold in payments. This saves on initial transfer costs and enables borrowers without solid credit records to demonstrate their ability to pay.

The non-mortgage housing finance sector in South Africa has been growing, but remains a fraction in value of the mortgage market.  Lending volumes are unfortunately not as well reported and quantified. National Credit Regulator figures showing that in 2015, about ZAR1 724 million (about US$121 million), involving 18 476 loans (down from 22 296 loans in 2014), was originated in the entire pension-backed loans market in 2015, versus Banking Association figures of ZAR1 250 million (US$88 million), involving 61 615 pension-backed loans in just the affordable market, in the same year.  The discrepancy cannot be resolved. The housing micro loans sector is in part supported with wholesale finance and equity by the National Housing Finance Corporation and the Rural Housing Loan Fund, both state-supported housing financiers.  By the end of December 2015, the RHLF had financed a total of 485 827 housing micro loans in rural areas.

In an effort to streamline government’s efforts in housing finance, efforts began in 2015 to consolidate the three state housing financiers, NHFC, RHLF and Nurcha, into a single, consolidated development finance institution.  This has had the unintended consequence of stalling activity by those institutions.  Still, the long term goal is to create a more efficient housing financing sector that explicitly targets lower income earners and the delivery of low income housing.


Housing affordability in South Africa is a critical challenge, bedevilling all housing practitioners in the public and private sectors.  The reasons for this are many, among which are low incomes (83.4 percent of households earn less than ZAR20 000 per month and 30 percent of households receive social grants); building costs have been rising faster than inflation; and the government subsidised house has had a distortive impact on the base price of an entry-level house.  In 2016, the cheapest, newly built house was estimated at about ZAR352 000 (US$24 788), affordable at current mortgage rates to households earning about ZAR15 000 (US$1 056) per month – estimated at about 15 percent of the population.

The situation is not new.  In 1994, it was estimated that South Africa had a housing backlog of three million units.  To address this and the related housing affordability challenges, the Reconstruction and Development Programme, or RDP, subsidy was introduced, entitling all households earning less than ZAR3 500 (US$246) per month (86 percent of the population at the time), and satisfying a range of other criteria, to apply for a fully subsidised house.  In terms of the RDP programme, subsidy beneficiaries get freehold title to a 180-250m2 serviced stand with a 40m2 top structure, entirely for free.  This is still true today, although eligibility criteria have changed somewhat.  The current government position is that applicants must be older than 40 years of age; those younger are expected to meet their housing needs independently or through the Youth Brigade.

This still leaves a “gap” however, of households earning between the ZAR3 500 upper income threshold for the RDP subsidy, and the ZAR15 000 income requirement for a mortgage for the cheapest newly built house.  Using AMPS data, Eighty20 calculates that about 40 percent of the population (6.4 million households) fit into this gap.  In an effort address this, the government introduced the Finance Linked Individual Subsidy Programme (FLISP) in 2012 (and in an earlier iteration in 2007). The subsidy offers beneficiaries a once-off capital contribution of between ZAR20 000 and ZAR87 000 (US$1 408 and US$6 126), depending on household income, which is to be tied to a mortgage to purchase a new or existing house. However, for various reasons, this programme has been unsuccessful, with only 6 329 subsidies issued, and is under review.

Increasingly, government is recognising this issue of the ‘gap’ market – especially as it impacts upon key public sector workers.  In 2015, this issue was one of the key drivers behind the signing of a Memorandum of Understanding between the Banking Association South Africa and the Department of Human Settlements.


Housing supply

South Africa’s residential house construction and rental is a ZAR152 billion (US$10.7 billion) per annum industry. This refers to output/sales which includes intermediate inputs purchased from upstream suppliers. This amounts to two percent of total sales in the economy in 2014.  The value added by housing construction and rental activities amounted to in excess of ZAR81 billion (US$5.7 billion) in 2014, which represents 2.4 percent of South Africa’s GVA. Residential house construction and rental sectors sustain employment of 468 000 people annually.

Affordable housing supply in the country is dominated by government-subsidised delivery, and since 1994, an estimated 4.3 million households have benefited from the delivery of 2.8 million government subsidised houses, and about 121 784 social rental units and 68 640 basic rental units; the transfer of a further 360 000 houses built prior to 1994; the servicing of almost a million sites; and mortgage-linked subsidies for a further 6 329 houses for lower-middle income earners.

Of these, an estimated 1.8 million are formally registered on the Deeds Registry, making government-subsidised housing comprise 30 percent of the total residential property market in South Africa. The Community Survey for 2016 reports that 79 percent of South Africans (13.4 million households) live in a formal dwelling – an increase of 5.7 million households since 2001.  However, another 2.19 million households (13 percent of the population) continue to in informal dwellings.  The Department of Human Settlements reports that subsidised delivery hit a low of 94 566 units delivered in 2014/15; this rose to 103 983 subsidised units delivered in 2015/16 – but deeds registry data suggests that only about 21 673 government-sponsored housing units were formally registered in 2014 and 22 865 in 2015. In terms of government’s Medium Term Strategic Framework, the Minister of Human Settlements has promised the delivery of 1.5 million new housing opportunities in the five years to 2019, comprising an estimated 750 000 households in upgraded informal settlements, the delivery of 563 000 subsidised housing units, 70 000 FLISP-supported housing units targeted at the ‘gap’ market, 40 000 further affordable housing market units, 27 000 social housing units, 10 000 community residential units (basic rental housing with shared ablutions), and 35 000 affordable rental units.

In fact, housing delivery has been declining across the board since 2012.  According to StatsSA, annual delivery by the private sector has declined dramatically since 2008 when 70 058 units were delivered outside the subsidised housing market.  In 2015, only 39 671 units were delivered – a marginal increase on the previous year. Rental housing is increasingly a significant component of new housing delivery, and a new investment target has been the delivery of student accommodation.  In 2015, Indluplace Properties became the first residential-focused fund on the JSE’s real estate sector.  JSE-listed SA Corporate Real Estate Fund is also planning to separately list its housing interests once its residential portfolio has grown to ZAR3 billion – double its current size.

Pension and provident funds have been targeting investments in the affordable housing space. Old Mutual’s Housing Impact Fund South Africa (HIFSA) will operate to October 2025, and targets affordable housing both for rent and ownership.  Global private equity funder, International Housing Solutions (IHS) is currently managing a US$230 million fund which includes an investment from the Eskom Pension and Provident Fund, and an US$80 million participating debt facility provided by the Overseas Private Investment Corporation (OPIC).  This fund financed over 28 000 units with a combined total value of more than ZAR8,6 billion (US$605 million). The second fund which expects its final close in January 2017 will have two separate sleeves, one of which will focus explicitly on South Africa.  Currently sitting at about US$180 million, the fund includes OPIC participating debt and a US$30 million in ‘green capital’ from the IFC Global Environmental Facility and KfW.

Property markets

South Africa’s residential property market is the largest component of the South African property market, comprising the majority of property assets within the country, and an important component of household wealth. The South African deeds registry counts 6.7 million properties on its registry, worth ZAR5.8 trillion. Of this, about ZAR3.9 trillion is in the residential sector, involving about 5.9 million registered properties. Almost 60 percent of the total formal residential property market is found in the eight metro municipalities.

The majority of the residential property market – 61 percent in 2015 – includes homes valued at less than ZAR600 000 (US$42 253). Of this, two thirds are homes that are valued at less than ZAR300 000 (US$21 126), of which the majority (estimated at about a third of the total residential property market) are estimated
to be government sponsored homes.

The role of municipalities in stimulating and enabling the development of affordable housing has come into sharp focus in the past year as house price inflation has challenged affordability.  A debate regarding a property in the wealthy suburb of Cape Town and its potential for social housing highlighted the significant role that land markets play in the realization of affordable housing.  This is something that municipalities are now beginning to grapple with.

South Africa has a well-established property market and a world-class cadastral system.  According to the World Bank’s 2016 Doing Business Report, South Africa is ranked 101st of 189 countries globally, in terms of how easy it is to register property.  It takes 23 days to go through the seven procedures required, and costs an estimated 6.4 percent of the property value.

The registration of title deeds remains a serious challenge. Just over half of the three million subsidised properties delivered by the state since 1994 are formally registered in the deeds registry, comprising an estimated 30 percent of the overall property market. The remaining properties have not been registered and do not have title deeds meaning they cannot be used to gear finance or for sale.  Attention to this backlog has become a key area of focus for government, and is the mandate of the Estate Agency Affairs Board.  In terms of government policy, only those subsidised properties that are registered and older than eight years can be traded.  Churn rates in this market segment are therefore low, although they are starting to improve, providing an important source of supply for lower income earners seeking to purchase housing.

Policy and regulation

South Africa has been attentive to the need for a clear policy environment since its release of the Housing White Paper in 1994.  This was followed by the Housing Act in 1997, which set out basic roles and relationships of the three spheres of government with respect to housing, and how government would respond to the constitutional obligation on the state to ensure access to adequate housing on a progressive basis.   In 2004, Cabinet approved a Comprehensive Plan for the Development of Integrated Sustainable Human Settlements, known as Breaking New Ground (BNG).  However, implementation arrangements were never finalised, seriously weakening its impact. BNG was later incorporated into the broader National Development Plan (NDP), the blueprint for the nation’s ambitions to eliminate poverty and reduce inequality by 2030. One of the affordable housing activities recommended by the NDP is to “conduct a comprehensive review of the grant and subsidy regime for housing with a view to ensure diversity in product and finance options that would allow for more household choice and  greater spatial mix and flexibility”. The Department of Human Settlements has been working on the development of a new Housing White Paper since early 2015.

Within the current national policy framework, other interventions that enhance access to housing finance and improve housing affordability, include the National Housing Finance Corporation (NHFC), the Rural Housing Loan Fund (RHLF), and Nurcha (originally the National Urban Reconstruction and Housing Agency). These three are currently being consolidated into a comprehensive Development Finance Institution, to be known as the South African Housing Development Bank.  At this stage, however, the brief of the SAHDB is not clear.

To address the scarcity of serviced land for housing, the Housing Development Agency (HDA) was established in 2009 with a mission to fast track the acquisition and release of state, private and communally owned land for human settlement developments. It will now become a fully-fledged property development agency, focused on acquiring and preparing land, to be project managers to assist municipalities and to drive rapid housing delivery.  The HDA is also responsible for the government’s catalytic projects.  The Social Housing Regulatory Authority was established in 2010 to regulate and invest in the delivery of affordable rental homes, with a focus on social housing.


Residential markets in South Africa behave in very different ways, across numerous property market indicators – growth in values and sales prices, transfer rates of new properties and resales, access to mortgage finance, and growth in equity. Comparing and trending indicators, it appears housing markets are operating in two different economies – those below ZAR600 000, largely government facilitated, growing quickly with private investment – and those above ZAR600 000, growing stably, with ready access to credit, and experiencing an uptick in activity. By understanding more about the strengths and characteristics of these sub-markets, more nuanced and appropriate approaches can be devised to expand housing options more representative of present and future housing needs, thereby enabling property to improve household economic strength and well-being.

Very clear opportunities exist in the below ZAR600 000 market for developers, lenders and investors – the demand is significant and current supply is insufficient. There is a great demand for affordable rental accommodation in centres of economic development for low income earners and students – and some developers have been responding to this.

Still in 2016, the affordable housing market is desperate for innovative solutions which might be found in the resale of government-subsidised housing, the delivery of incremental housing on serviced stands, inner city rental, or conversion of office blocks to residential accommodation for sale or for rent.  While the state housing subsidy creates some market distortion, demand should be responsive to alternative housing and financing approaches. Large and successful non-governmental funders in affordable housing projects have learned that the key to successfully funding affordable housing developments in South Africa is flexibility.


Banking Association of South Africa (2015) Affordable Housing Report

CAHF (2016) Affordable Housing Finance in South Africa: Understanding market performance.

CAHF (2015) The South African Residential Property Market: An Overview

CAHF (forthcoming) Assessing the Economic Role of Housing in African Economies: the Housing Value Chain

Finscope (2015). South Africa 2015 Survey Results.

FNB/BER Consumer Confidence Index, Quarter 2, 2016.

Melzer, I (2016) South Africa: A perspective on the consumer.

Melzer, I (2015) FSC Mortgage Loan Performance. Report prepared for CAHF.

National Credit Regulator (2016). Credit Bureau Monitor, First Quarter, March 2016.

National Credit Regulator (2016) Consumer Credit Market Report, First Quarter, March 2016.

National Planning Commission (2012). National Development Plan 2013: Our Future- Make it Work.

South African Reserve Bank, Bank Supervision Department (2016) Selected South African banking sector trends.  June 2016

South African Reserve Bank (2016) Financial Stability Review. First edition

World Bank (2016). Doing Business 2016: South Africa.



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