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31 OCTOBER 2014 A PARTNERSHIP FOR HOUSING DELIVERY “ A COMMERCIAL BANKING SECTOR PERSPECTIVE” Presented by: JACQUES CELLIERS.

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Presentation on theme: "31 OCTOBER 2014 A PARTNERSHIP FOR HOUSING DELIVERY “ A COMMERCIAL BANKING SECTOR PERSPECTIVE” Presented by: JACQUES CELLIERS."— Presentation transcript:

1 31 OCTOBER 2014 A PARTNERSHIP FOR HOUSING DELIVERY “ A COMMERCIAL BANKING SECTOR PERSPECTIVE” Presented by: JACQUES CELLIERS

2 2 OVERVIEW OF SECTOR’S POSITION  We are pleased to have been a repeat signatory to the multiple stakeholder Social Contract for Human Settlements on 17 October 2014 as  We are a key stakeholder  We view DoHS as a key partner  We are of the view that it is only through meaningful collaboration between key stakeholders (private and public sectors alike) that housing supply will increase to a level where it matches demand  We have been supportive of the National Development Plan (NDP) since its inception  At the beginning of this year The Banking Association Board identified implementable programmes to give effect to the NDP  It also prioritised three areas where we believe we can make a significant contribution, namely, Infrastructure, Human Settlements and SMME’S  The signing of the DoHS Social Contract by stakeholders is therefore a significant enabler

3 3 OVERVIEW OF SECTOR’S POSITION (CONTINUED)  In our view, the Social Contract represents the catalyst (the “glue”) to revitalize stakeholders within the housing sector  What is however needed is for the Social Contract to be translated into key specific stakeholder deliverables  There are however significant interlinked Supply and Demand challenges within the housing value chain which restrict stakeholders from achieving the envisaged increase in housing delivery  Singular initiatives will not achieve their desired objective as they are all inter-linked to other challenges  This will require technical working groups to engage within a holistic multiple facetted project framework to propose solutions to the significant supply/demand value chain challenges, for consideration by a joint stakeholder steering committee and for report back to the “regular stakeholder forums” as envisaged within the Social Contract ?

4 4 EXPERIENCES OF COMMERCIAL BANKS  The financial sector charter (FSC) is a success story. over the past decade some 2.4 million families have been able to improve their housing conditions by availing of loans amounting to R110 billion  Some key lessons from the FSC are:  This market segment has demonstrated that it is commercially viable and sustainable, where banks actively compete for market share  Lack of suitable stock continues to bedevil the sector’s ability to increase primary market end-user finance  Unless we overcome supply side challenges for new builds, lenders, despite their willingness and ability to provide end user housing finance to new homeowners, will continue to be hamstrung by insufficient housing supply  Key stakeholders within the supply value chain need to commit themselves to specific targets e.g. Bulk service providers, municipalities, developers and lenders.  A holistic “terms of reference” framework for stakeholders to engage on the multiple value chain challenges is therefore needed  All parties need to engage in good faith and be prepared to embrace change, failing which the social contract, “the glue” for promoting increased housing delivery, will not achieve its objective

5 5 EXAMPLE OF INTER-LINKAGES “ Gap market ” Problem statement Households earn too much to qualify for a BNG free house but too little to qualify for an entry level home  There are approximately families that find themselves in this position, including approximately 20% of civil servants  Whilst a partial subsidy (finance linked individual subsidy programme (FLISP)) to bridge the affordability gap was implemented in 2007, it has failed to meet its objective as the “GAP” market is increasing exponentially and only about subsidies have been disbursed over this period. The recent review of FLISP will improve scale but the allocation of subsidy budgets and slow approval turnaround times will still be an issue Inter-linked challenges (“GAP” market)  Applicant affordability  Product (maximum purchase price R )  Over-indebtedness and impaired credit records  Unemployment  Lack of suitable stock  Developers advise that they are unable to provide a 45m² unit on a 125m² site at less than R as:  The cost of a serviced site has now reached 33% of overall cost of a unit  Delayed township establishment/development process are causing substantial and unnecessary additional costs

6 6 Presentation to Finance Fiscal Commission 2012

7 7 EXAMPLE OF INTER-LINKAGES (CONT.) Potential solution mix (at least 12 inter-linkages)  Applicant affordability (subsidies, product innovation, consumer education, employer assistance)  Product affordability (cost of infrastructure/serviced site/top structure, township establishment/development processes, tax (vat, incentives), minimum standards (BNG vs GAP), developer profitability, cross-subsidisation from BNG to bonded units Some “Low hanging fruit” Supply  Create a firm engagement with local councils, infrastructure providers and developers to practically target projects. Localise these e.g. identify 3 projects in Ekurhuleni (we need 20+ Cosmo Cities in SA to make some impact). It must be aimed at the target income zone  There is no reason why a 35sqm can’t be built with starter finishes and later on additions, provided the BNG offering is reduced to below the “GAP” market home  Get the Housing Development Agency to package land parcels (this was the original intention of the HDA although very little developable land been brought to the market)  We need credit appetite (Developer and end user financing) to support these e.g. concentration risk, co-sharing models to chunk risk  Higher density development should be encouraged instead of free standing houses as the cost of servicing “sprawl” is too high Demand  Make sure the government employee housing scheme (and others) get off the ground.  It will assist greatly to package projects where the demand side is over subscribed.  Review the subsidy quantum of FLISP (Finance Linked Individual Subsidy Programme).  Review municipal charge-outs - developer, infrastructure and cross-subsidisation (will positively impact on supply too)

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9 9 ECONOMIC PERSPECTIVE  The challenge to satisfy the gap market is more significant than providing finance  If more loans are granted, prices will keep increasing due to the shortage of supply to the point where cost is closer to the mainstream market  Also, with current inflation trends developers are struggling to develop the required units within the affordability price cap without any changes  Alternative building methods/architecture may be needed to keep building costs down  Developing on cheaper land further from cities with the increasing cost of transportation simply negatively influences travel costs and productivity levels of low income earners. Higher density developments must be encouraged.

10 10 QUESTIONS


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