Housing for the Missing Middle

HOUSING FOR THE MISSING MIDDLE

Transform Real Estate magazine had the opportunity to sit down with Nonhlanhla Buthelezi, Chief Director: Operational Policy Frameworks at the Department of Human Settlement.

According to Ms Buthelezi, “FLISP is an acronym for Finance Linked Individual Subsidy Programme, a financial intervention within the National Housing Code.” She goes on to explain that the Housing Code is a policy document and contains programmes that prescribe rules and guide how policies should be implemented.

Ms Buthelezi tells us: “The programme was first implemented in 2006 after the approval of Breaking New Ground strategy which is officially known as the Comprehensive Strategy for the Delivery Of Sustainable Human Settlements. This was done after the government had conducted a clear diagnosis that confirmed that there was a missing middle which comprises beneficiaries that do not qualify for a full government subsidy. The programme has been amended twice to improve performance. The National Implementing agent has been allocated a role to administer FLISP for both mortgage and non-mortgage options.”

She says “FLISP addresses this gap market, or the missing middle. The subsidy works as a down-payment assistance mechanism to reduce the principal loan amount which would ultimately reduce the monthly loan repayment instalments, rendering the loan affordable to a qualifying beneficiary.”

“In previous iterations of FLISP, the rule was that beneficiaries first had to secure mortgage loan finance before the FLISP application can be launched. However, this has been changed to accommodate GEHS (Government Employee Housing Scheme, please see page xx for more info on this scheme) and non-mortgage options such as pension backed loans, housing loan facility, deed of sale option, incremental loans and stokvel options. The income threshold has been increased to R22 000.”

But how many South Africans have benefitted from FLISP since its inception? “Since the inception of the FLISP Programme, the numbers of beneficiaries that have benefited have not been enormous, amounting to only about 10 000. Partly because the mortgage market has not performed well since the global financial crisis of 2008. We at DHS are, however, engaging with some stakeholders trying to find solutions. This includes workshops with the World Bank, National Treasury, NHFC, Provinces, Banks, GEHS, Pension Fund, Rural Development, RHLF, etc.”

Figure 1: Graph This is also corroborated by information from the National Credit Regulator as analysed through work done by Illana Melzer & Claire Hayworth under 71point4

When asked about the FLISP mandate to the people of South Africa, Buthelezi responds: “FLISP is a housing subsidy that applies to all individuals that earn above R3500 up to R22 000. The people of SA must know that the government is concerned about the lack of economic growth, unemployment, poverty and inequality. The lack of real growth in the mortgage market is a problem.

“The government fully understands that the housing market is made up of both formal and informal market and both markets play a role in the economy and should not be underplayed or under-counted. Government has delivered opportunities to 4.5 million opportunities which have boosted the housing and property market. A house is an economic asset for wealth creation and is good for growing the economy.“

She goes on to add, “FLISP is meant to improve the functioning of the property market by accelerating the delivery of housing in the so-called gap-market, in other words, the market where government does not build.”

The FLISP subsidy may be utilised for: • The purchasing of existing improved residential properties;
• The purchasing of a vacant serviced residential stand, linked to a house-building contract which has NHBRC registered home-builders; or
• The building of a new home through a house building contract entered into with a contractor, registered with the NHBRC, on a serviced residential stand that is already owned by the beneficiary

What are the key contributing factors that inspired the conceptualisation of the programme?

“The White paper of 1994 crafted a strategy for housing and set a target of providing 1 million houses. This target was achieved and with the revised strategy for comprehensive housing development, there was a shift from housing to human settlements. Human settlements is a totality which made the sector to use systems theory and begin to make a special focus on the entire residential market.”

Since the programme was implemented, what factors have changed over the years, and what were the factors behind the changes in policies and overall updating of the policies?

• The building costs and prize of a house – has led government to consider changes in the subsidy quantum applicable in FLISP. The Department works with the Bureau for Economic Research Building Cost index ( BER- BCI) which reflects an increase over the years and this is more or less 40%.
• The upper-income threshold of the qualifying criteria – The Income threshold has been changed to R 22 000 in line with the Banks definition of affordable housing.
  The definition of affordable housing – Affordable refers to units in the gap, but affordable in other countries includes what government provides to the poor. The term is relative – what is affordable to me may not be affordable to you. A house worth R340 000 can be bought by someone earning R14500 per month.
• The upper threshold of BNG almost equivalent to Minimum Wage of R 3500
• The size of the mortgage market? It has declined over the years creating space for the non-mortgage options

So, do people know about the programme? “Judging from the unimpressive statistics of below 10 000 beneficiaries”, says Buthelezi, “Clearly we have not gotten the message out to the people. As a result NDHS and the implementing agent is embarking on a massive communication campaign to promote the programme, to make more people aware of it, and in so doing expand the programme.”

She finishes of by saying: “The biggest problem facing potential beneficiaries is that a vast number of South Africans are heavily indebted and deemed as non-qualifiers because of an inability to get a mortgage loan from financial institutions. We are including education in this area into our consumer education campaigns, to teach people how to get out of bad debt, so that they can improve their circumstances.”

FOR YOUR INFORMATION

Who can apply?

Anyone who earns between 3500 – 22 000 and who have never owned a house.
How can you qualify?

• Apply at a relevant Provincial Office or through the National Implementing Agent
• Approach the Bank for a mortgage application » Submit the relevant documents for screening done by Provinces and the National Implementing Agent.

What do I need to apply?

• ID
• Proof of Income
• Marriage certificate (if married)
• Birth Certificate or ID copies of dependents

Once you have benefited from FLISP are there any “guidelines” or rules?

• You must pay your loan and treat it as an asset for wealth creation
• Guard against selling informally without valuation
• While the programme has been exempted from the provisions of the sale restriction clause, that governs other programmes like RDP, always consult the MEC regarding the exemption while the legislation is being amended.