Affordable housing in great demand

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Johannesburg - There is high demand in the affordable housing sector with an estimated million homes still needed and an average of only 20 000 units developed a year without taking into account future demand, according to Marius Marais, CEO of FNB Housing Finance.

The affordable housing market in South Africa is defined as households earning between R3 500 and R25 000.

This market accounts for about 32% of the entire home loan market, requiring cost effective, good quality housing up to R600 000.

“We recently analysed the latest Census data and our analysis shows that the entire home loan market comprises of about 14 million households. Of this, 9 million households earn less than R3 500 per month and qualify for fully subsidised housing," said Marais.

"Above this layer lies the affordable housing market, which according to our research comprises of around 4.5 million households of which there is a demand for around a million new homes.”

He said the demand side, there is a major need for innovation in financial products in this market as the traditional mortgage loan financial product cannot be the only solution as it is in the higher end market.

“There is a strong need for more innovation and a holistic approach around alternative loan structures such as pension backed loans and unsecured home improvement loans as well as government subsidies and employer support," said Marais.

"We are looking into developing different ways of financing this market, combining a mix of these different financial options that can really serve this market’s housing needs.”

On the supply side, it is essential to start building more units at the right price level to meet the market demand, said Marais.
“Currently there is no supply of houses to a household earning between R3 500 and R9 000," said Marias. "We are in the process of doing work around building specifications with players in the supply chain with a view of finding a lower priced design. This may also mean reducing the starter home size to below 40m².”

FNB’s Housing Finance market, of which 96% are first-time homeowners, are most affected by issues of affordability and economic risks such as interest rate increases, inflationary pressures and unemployment.
“Noteworthy to this market, the default rate is more stable than that of the traditional mortgage segment where household income is higher than R300 000 per annum” said Marais.

FNB’s Housing Finance, which is 10 years old, has grown its loan book to close to R13bn and recently reached its 10 year target of over a 100 000 units financed.

The business unit plans to finance approximately 6 000 new housing units to the value of R2bn over the next two years.

These units will come from 40 developments that the bank has approved, consisting of a total of 12 000 units.

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