SA should look to Brazil for affordable housing example

South Africa should take a leaf out of the book of the Brazilian government and business sector when it comes to dealing with affordable housing needs. 

That’s the word from real estate industry representatives recently returned from an Absa-sponsored study tour of the South American country. Among them is Aida National Franchises CEO Jan Davel, who notes that Brazil’s housing construction sector is booming as it focuses on providing more than 7m new homes the government estimates are needed now for lower middle-income buyers. 

“Companies that once devoted their entire business to building chic residential properties for the cosmopolitan wealthy in São Paulo and Rio de Janeiro are now building smaller and cheaper homes in state capitals and the provinces,” he notes.

“And progress in opening up the market to such buyers can be measured by the fact that the number of houses financed by the government-run Caixa Econômica Federal – Brazil’s biggest mortgage lender - doubled between 2003 and 2006 to more than 600 000 a year.” 

According to Décio Tenerello, president of the Brazilian Savings and Loan Trade Association, this is largely due to a change in lending legislation which makes it possible for banks to repossess property in one year rather than seven if a borrower defaults on a home loan. 

However, RealNet property group CEO Tjaart van der Walt says it is also a function of the fact that both government and the private sector have made a commitment to tackle Brazil’s huge affordable housing problems on a co-ordinated basis. 

“Currently more than 20 property development companies are publicly listed in Brazil and this is expected to more than double in the next three years, according to one major company, Rossi Properties, which has itself raised more than $1bn for 100 projects that will deliver 7000 residential units at the affordable end of the market this year. 

“To date in South Africa, the government has been mainly responsible for affordable housing development but its good intentions have been bedeviled by alleged corruption and mismanagement on an astonishing scale. 

“Now it should rather facilitate public listings of companies servicing this market, perhaps through special tax incentives, and create a parallel policy of government-private sector delivery, than pursue the current ‘big stick’ approach of forcing banks to make finance available for this market and developers to include affordable housing components in all new projects.” 

Other positives to take from Brazil, he says, are higher skills levels, a lower unemployment rate because Brazil has stopped illegal immigration, a good work ethic and the fact that public services such as electricity and water are being supplied by government at a much faster rate and in a planned way, which creates a positive climate for developers. 

“In short a major shift in political and business will is needed if we are to effectively tackle the growing problem on our doorstep.” 

SHAREBLOCK: KNOW WHAT YOU ARE BUYING

Shareblock is under the spotlight again as agents lobby for moreinstitutions to lend money to purchasers. 

“But the reasons for many home buyers’ reluctance to buy into a shareblock scheme is more complex than just funding,” says Lauren Maltby of Shepstone & Wylie Attorney’s property department. 

“It usually stems from a general lack of knowledge about shareblock, queries about financing and a fear of the often lengthy sale of the shares agreement with accompanying documentation.” 

“Education is greatly needed as there can be pro’s to this type of ownership and many of the beautiful character properties, are under shareblock,” she says. 

Maltby explains that a shareblock company is run by a chairman anddirectors, whereas a sectional title scheme is governed by body corporate comprising all the owners of units who appoint trustees to manage the scheme. “The method of transfer of ownership of the two systems is also different, as are the costs involved,” says Maltby. 

Registration of sectional title unit occurs through the deeds office and is undertaken by attorneys who are qualified conveyancers. Transfer costs include transfer duty (or VAT), deeds office fees, conveyancing charges and bond registration costs. In comparison, the costs of transferring the shares and ceding a loan account and use agreement in a share block transaction are considerably lower. 

The financing of a sectional title unit is normally arranged by a loansecured by a mortgage bond registered in favour of the bank over thesectional unit. “The challenge with share block is that there are only a few financial institutions that will lend money in these schemes. Their security is a pledge and cession of the share at a rate of interest usually slightly higher than the bond rate.” 

Maltby points out that a share block scheme provides participants withrights of occupancy to certain portions of a building for the duration ofthe scheme through holding a block of shares in a company. The land and building forming the subject of a share block scheme is registered in the name of the share block company. 

The issued share capital is divided into share “blocks” and linked to each share is the right of the participant to the exclusive use of a portion of a building. The share block resident therefore owns a share in a company as against the sectional title owner who is the owner of a sectional title unit registered in the deeds office. 

She advises anyone thinking of buying into share block to contact anattorney and to ensure they understand the implications of this type of ownership before going to far down the purchasing road.

INLAND PROPERTY PRICES GROW FASTEST

The latest review by Rawson Properties of house price figures throughout South Africa indicates that the upward trend continues at a satisfactory rate. 

Tony Clarke, Rawson Properties MD, says that the latest Absa figures indicate that the average price of small houses (80 to140m²) is now R632 765, while that of middle size homes (141 to 220m²) isR890 441. That of large homes (221 to 400m²) is now R1,2 million - Absa does not take extra-large homes into account. 

All categories, says Clarke, have seen significant growth year-on-year, but the most impressive has been that of the large homes where the increase was 18,1%. By comparison on a national basis, smaller homes are appreciating at only 10% year-on-year and middle-sized homes at 17,7% year-on-year. 

Investors, says Clarke, will be interested to learn that the fastest pricegrowth in the large home category is taking place in the “secondary” inland provinces rather than in the major metropolitan areas such as the Western Province and Gauteng. Mpumalanga, for example, is witnessing almost 34% growth in house prices and Limpopo and the Free State are not far behind at 30%. 

By comparison, the large home category in the Western Cape and Gauteng is seeing 16,6% year on year growth. The main reason for this, says Clarke, is that the property market in the Western Cape and Gauteng is already starting to stabilise after a boom in 2004, whereas the country provinces are only now catching up. 

Prices in Johannesburg are now appreciating faster than those in Cape Town but here it is very definitely the lower category homes that are rising most satisfactorily, i.e. at ± 20% per annum. 

“In Johannesburg there is a strong demand for smaller properties in security complexes and this is driving prices upwards. Johannesburg is catching up with Cape Town prices, which are still the most expensive in the country.” 

Clarke believes that as long as the economy can maintain a 4 to 6% growth, prices will continue to rise - and that coastal property will do best. “Worldwide, coastal property is booming,” he said, “due to the scarcityfactor. That is why Cape Town property remains the most expensive in the country.” 

IS THIS A GOOD TIME TO BUY A HOME?

Buying a home if you expect to sell it within two years is a risk, especially in an uncertain market, because there are quite steep costs associated with selling. But most buyers live in their new home for an average of five years or more and if that fits you, it almost always makes sense to buy rather than rent, in practically any market, says Berry Everitt, MD of the Chas Everitt International property group. 

There are various reasons for this, the first being that if you are thinking about delaying a purchase because you want to “time the market” to get the very best deal, that is almost impossible to do with precision. “Even the most knowledgeable experts cannot reliably anticipate the ‘bottom’ of a real estate market,” he says. 

Secondly, if you aren’t an owner, you’re a renter, which means that you are giving whatever you spend on housing to someone else, with no long-term benefit to yourself. Writing in the Property Signposts newsletter, Everitt says that the third reason to buy as soon as you can is that the easiest way to accumulate wealth is through home ownership.

“Three out of four homeowners have more equity in their home than assets in retirement funds, stocks and savings.” He acknowledges that there are some areas that had more rapid appreciation in recent years and may suffer from lower price-growth than the rest of the country or region over the next couple of years. 

“However, you can minimize the possibility of lower appreciation for your home by determining your price range and choosing an area where your target price is in the lower tier of prices in that area. That way, your home has less vulnerability on the downside and the higher-priced homes will help pull you up during hot markets.”