How is affordability measured? The affordability of housing is generally measured by comparing the ratio between average house prices and the average disposable household income in the country. This ratio to determine housing affordability is used worldwide and conventionally/ a potential buyer should spend no more than 30% of their disposable monthly income on housing. However, affordability is dependent on multiple factors, some of which are not directly related to housing, for instance, transport and travel costs need to be considered when determining a buyer's affordability, as these will add to monthly expenditure.
The average gross income in the middle-income bracket during 2015 was R 178 932.00
per annum (R 14 911.00 per month) which, after tax leaves R 13 113.00 net salary per
month, 30% of this figure would mean that the average person could afford to pay
approximately R 3 933.90 per month towards housing (this is just a very basic demonstration
as it hasn't accounted for more than one income per household or other expenses).
The average property values for properties of a
certain size in the affordable housing segment
of the market during 2015 were as follows:
Small 80m2 – 140m2 R 876 000.00
Medium 141m2 – 220m2 R 1 201 000.00
Large 221m2 – 400m2 R 1 837 000.00
Working off of the small home figure of R 876 000.00 and using the prime lending rate
of 10.25% and a 10% deposit, the monthly installments on a 20-year bond of R 788 400.00
would work out at R 7 739.27, which falls well outside of the "affordable" range of "no more than 30% of monthly household income". There is a tendency, in the property market, for housing prices to become "over-valued" -the housing bubble of 2007 is a good example of the ratio between disposable household income and property value falling out of balance. Affordability figures show that since early 2013, there has once again been a gradual deterioration in this balance due to slow growth in average household incomes with property prices exceeding income growth by approximately 2% per annum.
Despite what looks like a rather grim demonstration of affordability. South Africa still has, by historical and global standards, a fairly affordable property market leaving no need for immediate concern. It is important to note that housing affordability and the affordable housing sector are not one and the same.
Who makes up the affordable housing sector?
There is a huge demand for properties amongst South Africa's growing middle class and predictions suggest that by 2030, up to 70% of the population will reside in urban areas. This segment of the population is considered South Africa's affordable (or "gap")
the housing market and it includes households with a monthly income ranging from
R 3 500.00 to R 25 000.00 looking to purchase properties with a value of up to R 600 000.00.
This group of buyers generally has a problem acquiring mortgage finance as their income is too low, but are also unable to receive a "free basic house" from the government as their income is too high.
There was another problem for buyers who couldn't afford anything above R 300 000.00
because developers battle to produce housing costing any less. This led to the Department of
Human Settlements creating the Finance- Linked Individual Subsidy Programme in order to cater to the massive demand for affordable housing for lower income groups.
Finance-Linked Individual Subsidy Finance-Linked Individual Subsidy Programme (FLISP
FLISP was introduced in April 2012 and is aimed at benefitting first time home buyers in the R 3 501.00 to R 15 000.00 total monthly household income bracket. The subsidy can be obtained by applying for a home loan from a recognized financial provider (bank) or it can be 'paid out to the conveyancers attending to the transfer, in which case the beneficiary needs to be able to cover the remainder of the purchase price themselves.
The criteria to apply for a FLISP Housing Subsidy:
An individual may only apply to receive a housing subsidy if he/she meets the following
The applicant has a family: a spouse/long term partner (co-habiting) or dependents;
The applicant is a South African citizen or lawfully a resident in South Africa;
The applicant is over the age of 18 and legally competent to contract or if
under the age of 18 is married/divorced financial dependents' applicant's gross household income does not exceed R 15 000.00 per month;
The applicant's spouse has not received a subsidy previously;
The applicant is a first-time homeowner;
The applicant and his/her family intend to reside on the property purchased with the subsidy;
If an applicant is single without any dependents, he/she may still apply fora housing subsidy if he/she is aged, health stricken or disabled.
What can I buy using FLISP?
If you qualify for FLISP, you will be able to buy one of the following, on condition that it is
a residential property in a formal town where all transactions can be recorded by the Deeds Registry Office.
Buy an existing residential property.
By a vacant residential stand linked to an NHBRC registered home builder contract.
Build a residential property on a self-owned residential stand through an NHBRC registered builder.
You are not required to repay the subsidy amount as it is not a loan. However, you will not receive the money directly as it will be paid out by the government straight to the relevant seller. The property will not be registered in your name until approval of the subsidy is granted.
The National Housing
Finance Corporation (NHFC) -
If you feel that you are eligible for a housing
the subsidy, please contact the FLISP for further
information on- 021 845 4143/4 https://www.flisp.co.za/