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Kick starting South African township residential property markets

One in five South African households lives in black townships – urban areas that were set aside during the apartheid era for black South Africans to live in. With the transition to democracy, households are now legally able to trade their housing. This has been limited however, and when it does happen, prices fall far below real values. Township households cannot generate capital using their property as an asset and are unable to use their property as a means of making money. Action is needed to unblock this market.

A report from Shisaka Development Management Services in South Africa examines how township residential property markets operate. The researchers argue that the property market is ineffective and inefficient as a result of legal, institutional and procedural constraints. Not only does this restrict the economic growth potential of townships, it also undermines the asset creation potential of the state’s subsidised housing scheme.

The residential property market in black townships comprises four sub-markets:

informal: unrecorded sales transactions and dwellings erected by the occupants on land without the permission of the owner
incremental: housing stock supplied through a post-apartheid subsidy scheme
old township: housing units built as rental accommodation by the apartheid regime, which, since 1991, have been made available to their occupants for ownership
privately developed: formal housing developed by private sector developers and purchased with assistance from a financial institution.

Of the 2000 township households interviewed, only 12 percent have transacted in the housing market in the past five years, compared to the national average of 30 percent. The study identified three types of problems that affect the township residential property market:

delays in titling and inaccurate title deeds
transactional problems of legislation, certificate requirements, costs and a lack of information
unavailability of appropriate financial support to purchase existing housing.

These problems prevent the emergence of a ‘housing ladder’ – whereby a household can sell one property to purchase a better quality property. Movement of households between the sub-markets is limited. Households therefore focus on the utility and social value of their housing over and above the asset (monetary) value.

An effective housing market could offer low-income households a significant opportunity to accumulate housing assets and to realise capital value through sale. It could also encourage building more houses. The value of properties in Black Townships is currently estimated at 68.3 billion Rand. These properties could provide significant collateral for low income households to secure credit for a range of business uses.

The authors recommend six interventions for government and financial institutions, which could improve the workings of the residential property market:

formalise informal settlements, define individual residential boundaries and distribute title deeds
lift prohibitions on selling houses built with government subsidies and restrictions on households still in debt to municipalities because of their anti-apartheid boycott on paying utility bills
improve market information and transaction support in townships by assisting sellers to advertise their houses, providing bulletin boards in public spaces and training estate agents
make credit available in townships and introduce risk-sharing mechanisms to avoid high levels of foreclosure
increase resource flows from national and provincial governments to local authorities to invest in township infrastructure and work towards raising environmental quality to the level of non-township residential suburbs
enhance public understanding of the residential property market and the value that it brings, as well as the need to have registered ownership.

Source(s):
‘Workings of Township residential property markets’ by Matthew Nell, Ros Gordon and Andreas Bertoldi, Shisaka Development Management Services (Pty) Ltd, 2004 Full document.
‘TPPM Household survey database (2000 respondents across 18 sites in 4 metropolitan townships)’ Full document.

Funded by: The FinMark Trust, the South African National Treasury, the National Housing Finance Corporation, the Micro Finance Regulatory Council, the Ford Foundation and USAID

id21 Research Highlight: 15 June 2005

Further Information:
Kecia Rust
FinMark Trust
PO Box 27464
Parkview 2122
South Africa

Tel: +27 11 880 3421
Fax: +27 11 880 3421
Contact the contributor: kecia@iafrica.com

FinMark Trust, South Africa

Shisaka Development Management Services (Pty) Ltd
4th Floor, JHI House
Cnr. Cradock Ave. & Baker Str.
Rosebank
South Africa

Tel: + 27 11 447 6388
Fax: + 27 011 447 8504
Contact the contributor: shisaka@shisaka.co.za

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