Housing Highs and Lows

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While South Africa's banks are meeting, and exceeding, their targets for providing low-cost home loans, ongoing electricity shortages, rising costs and a persistent lack of skills are combining to hamper residential construction.

On March 25, the South African Banking Association (SABA) announced it was well on track to meet the commitment it gave in 2003 to disburse at least $5.2bn worth of home loans in an effort to help ease the country's lower-income housing shortage. In fact, the association said it expected to be ahead of its goal by at least 20% by the end of the year.

As of the end of 2007, loans worth about $4.8bn had been made by South Africa's four largest banks, who had signed on to the government-backed Financial Sector Charter as part of a public-private initiative to boost the country's housing stocks and make home ownership more affordable.

Of the loans made so far, $3.2bn were in the form of mortgages to slightly more than 200,000 families, while a further 610,000 families obtained non-mortgage loans worth $1.6bn, SABA said.

By year's end, the association estimated its members would have made housing loans worth $6.4bn. According to Cas Coovadia, managing director of SABA, the funding situation is even better than the organisation's findings show.

"Given that other member banks include substantive non-mortgage lenders who provide housing-related loans, such as African Bank and Capitec, I believe if their achievements are included, the [$5.2bn] housing origination target has already been exceeded and that well over one million families have benefited from this initiative," Coovadia told local press.

However, while loans to those most in need may be forthcoming, they are not enough to bridge the housing gap targeted by the banking industry, which SABA estimates at 640,000 units. The situation is compounded by a series of difficulties afflicting the housing and construction sector, which have conspired to slow building rates and push up costs.

Construction activity has been hindered by the ongoing power cuts imposed by state electricity provider Eskom due to capacity shortages. These blackouts, which have hit at all sectors of the economy, have been identified as a key factor in the building sector slowdown.

Eskom has also come under fire for its recent announcement that it will delay processing applications for power connections for new construction projects requiring more than 100 kilo-volt amperes (kVa) for up to six months, another scheme aimed at easing demand. SABA said Eskom's decision had brought the residential housing market to a standstill and would have "a serious impact on the provision of new houses".

Backups in the completion of homes also stem from at times lengthy delays in the state provision of essential infrastructure - the roads, electricity connections, water and sewage pipes that must be put in place before construction can begin. Cost increases are another worrying element. Over the past 12 months, building expenses have risen by 25%, the increases driven primarily by hikes in the prices of serviced building sites, SABA said.

Yet another factor hampering the construction sector is a lack of skilled staff. Rob Johnson, executive director of the Master Builders' Association-Western Cape, said the lack of trained carpenters, plumbers, factory joiners, bricklayers and plasterers was slowing the completion of projects.

The lack of skills "has a major effect on service delivery [...] The whole country will be affected," he told local press on March 25.

Some of these problems were reflected in figures released by Statistics South Africa, the state statistics bureau, on March 19, which showed a steep drop in the number of building plans being approved by authorities.

While the sharpest decline was for non-residential constructions, which fell by 33.2% year-on-year in November, there was a 17.5% fall in the approval of plans for residential buildings. This came on top of a 14.8% year-on-year drop in completed residences.

Sizwe Nxedlana, a property economist with Standard Bank, warned the housing market would face further pressure from rising prices and interest rates, along with slower growth for real incomes, especially in the lower-cost segment the government is seeking to promote.

"The deterioration in affordability has had a more adverse impact on the lower end of the residential property market," Nxedlana said in an interview with local press on March 19. "Evidence of a consumer under pressure has not only become manifest in weaker demand for housing and house price growth, but other components of consumer spending are also under severe pressure."

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