 Good evening and welcome to episode 356 of the Private Property Podcast. I'm your host, Uzama Andouma Kumalo. It's a Tuesday edition of the Private Property Podcast and if you're joining us for the first time, welcome to the biggest property show in South Africa catering to all of your property needs. Make sure that you follow us across our social media platforms and of course catch up on all the great episodes that you have already missed out on. And all our regular viewers on Facebook, on YouTube, as well as on Instagram, welcome back. You know how we do it? Every single weekday, you and I have an appointment at 7pm, where I'm always in conversation with a property expert who helps us navigate our property journey. And doesn't matter where you are in your property journey, whether you're looking to start art, you've already got your feet wet, or of course looking to grow your portfolio. This is your one-stop shop on all things relating to property. 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Now, you know, this evening's conversation is one that absolutely fascinates me. I was we're already having the pre the interview before the interview with my guest of air, and that's how you know it's good. I think a part of me wanted our conversation to continue of air. But I thought, you know what, let's let's let's make sure we make this circle bigger and certainly, of course, invite you at home as we talk about something that we don't speak a lot about on this show. And I think this is also one of the reasons I'm so excited about it this evening. We'll talk about the RDP resale market. And I'm joined this evening by Chris here. Russ is an executive director at the Center for Affordable Housing. Chris, good evening and thank you so much for joining us on the show. Thanks so much for having me. It's lovely to be here. You know, because it's only a pleasure to have you on the show. I think before we even look at the resale, the RDP resale market and looking at, you know, how the market in its entirety looks like. I think first, let's start with the Center for Affordable Housing. What is the center? What work does the center do? I'm not saying to you off air that we haven't had somebody from your team and really wanted to give our viewers a good sense of the incredible work that the center does before we tackle this topic this evening. Super, thanks. We're a policy think tank and NGO that supports investment in affordable housing. We're supported by a number of funders and our work covers the whole continent. We look at we undertake research. We collect data and undertake market analytics on that data to support the investment in our argument for affordable housing. In doing that, we we we work with investors. We work with policymakers. We work with financiers with developers all to identify what is the particular niche in a particular country? The we started in South Africa and we live here. So so our greatest depth is in this country. And here we've been working for, oh, gosh, for I mean, the center was founded in 2014. But prior to that, we've been working since since early 2000s, focusing on South Africa's residential property market with a specific focus on the affordable market and on low income households and their ability to access housing within the South African housing environment. I'm really seeing some of the love that we're getting on our social media pages, especially Facebook. I know that a lot of you who weren't able to access us on Facebook two days ago, absolutely love that. We're back on pulling on courses, watching a full of fellow hope who's also watching Sandy Stemett sending through those green hearts. You know, Chris, so I think one of the things that I'm keen for us to explore and, you know, as a center, especially as you say, you're not only based or you don't only do research in South Africa when you look at your investment in affordable housing, perhaps can you give us a sense of what the market is like when you look at affordable housing in South Africa? Because I think more often than not, this is that sphere that gets spoken about and some people have all kinds of assumption when it comes to that particular market segment. And some of the assumptions are unfortunately very off. And some of it is great. And it's just always contested ideas when it comes to the affordable housing space in South Africa. On the one hand, we can have policy that says X, Y, Z, and we'll talk a bit about that later on. And different people have various sentiments around it. When you look at sort of at a high level, the state of the affordable housing market in South Africa, can you give us some insights on what we're looking at the size and when you were sharing earlier, even the size. I was I didn't realize that that was the scale that we're at. Perhaps to share with us some insights when we talk affordable housing in South Africa. Sure. I mean, I think the essence of your show is that the property market in South Africa is huge and it's important. It's a fundamental part of our economy. It's it's a critical part of most households balance sheets. Those who do own property, it's a significant part part of their own on livelihood strategies and so on. So if we look at the whole deeds registry in the country, there's six point six million residential properties in South Africa. Six point six million. And we like to segment that data of the number of the number of properties on the deeds registry in terms of value bands that really emphasize the bottom end. So we split that up into five different categories. We talk first about the entry market, which is properties that are worth less than 300,000 rand. And normally when you look in the newspaper, you're not going to find many of those and they're not often talked about. But that is significant. That's 33 percent of our of all residential properties in South Africa are worth less than 300,000 rand. The next category, the second category, is the affordable market. And that's properties worth between 300,000 rand and 600,000 rand. And at the end of 2019, there were 22 percent of all residential properties in the country were in that band. So that means that we've got 55 percent of all properties of all residential properties in the country that are costing less than 600,000 rand. The reason you don't see them is because they don't trade. They trade much slower than the higher value properties. So that's why you would see more about the higher value. The third band is the conventional market, so called conventional market properties worth between 600,000 rand and 900,000 rand. And that's about 15 percent of all properties, residential properties in the country. Then the fourth category, we call the high end market. And that's properties worth between 900,000 rand and 1.2 million rand. And that's about 9 percent of all properties. And then what we call the luxury market is properties worth over 1.2 million rand and mostly I'm sure the conversation focuses on that segment of the market and that's just a fifth of all properties in the country. Twenty percent of all residential properties in the country are worth more than 1.2 million rand. So when we segment it that way, we really want to understand what's happening at the bottom end where low income people would be able to afford. You would know that since 1994, we've had a national housing subsidy scheme and it's delivered upwards of about four million properties or so. RDP properties are part of the reconstruction and development program. And then later, the breaking new ground policy, they were called BNG houses. So the state has delivered somewhere like four million. Now, that's a huge number of those two million are on our National Deeds Registry are formally registered on the Deeds Registry. So that is 30 percent of all residential properties in the country were financed by the state and given away to their current owners for free. So that's a massive transfer from the government to low income households. Of those about a million are in the major metros, so they're in cities that are functioning where there's a lot of property transactions and that's a really significant asset base for the households themselves and then also for the cities of which they're operating because that this is stock that has been built and delivered over the past what, 20, 26 years or so. As you were sort of breaking down that market segment, you're correct that they oftentimes, especially in the big metros, when we talk about and even in mainstream media, when we talk about property and property transactions, we do tend to focus a lot on certain segments. And I mean, we even see this in the data, right, in terms of which properties were traded and what was the value of those properties. And as you rightfully point out, we look at properties below that 300K mark, you tend to just typically not see a lot of activity at all. I mean, in that segment across different metros. So the point where you when you go, when people go on a private property, let's see, even do a scaling of from lowest to highest, you're really going to be finding a property that's listed with that amount. And sometimes when it is, you sort of question, I mean, if you see a house, let's say in the township or you see an RDP house in particular in the township that is being listed, suppose, for instance, for 180,000, a part of you thinks this low suspect, you know, how could that possibly be? And I'm keen to hear then from you what what you've been seeing in terms of the research and the data that you've got when we then look at the RDP resale market, because I think it's one of those spaces that has been very contentious. And I say contentious because we know what on the one hand, what the policy says when it comes to RDP houses, at which point you take ownership of it, at which point you are able to, for instance, rate it out to somebody. And when you answer that, we could start with the policy itself and it's shortcomings when we look at what people can or cannot do, what it says people can or cannot do with the property once it's sort of being handed over to them and then give us some insight on how the RDP resale market in South Africa is currently looking at. Cool. Sure. So in terms of the national subsidy policy, government was building all of and has been building all of these houses over the last 20 years. And then the the the Housing Act has a clause section 10 in it, which is known as the preemptive clause. And what that says is that a household who is a beneficiary of a government subsidized house is not allowed to sell that house for the first eight years, sell or otherwise alienate. The reason for that when that policy was originally put in place was it was felt that people who would be given these houses, given them for free, might be inclined to quickly flip them for cash. And there was a fear that they would do that and then move back into an informal settlement and then government would be forever building houses and they would never be done with it. It was felt to that if there was poor market information, and this is a really critical thing, because at the time when that was developed, there was poor market information that people wouldn't know what their houses were worth. And so maybe they would flip those houses for way less than it even cost to build them. And there have been lots of stories about that. You've seen that in the press. People talk about it and everyone gets worried. What if somebody sells their house for like 20,000 rand? It's true. People did do that once. I can't tell you how many because must of that was informal and so it wasn't documented, but it did it did happen. However, what we can see is of the formal transactions that do happen on the deeds registry, the prices are in a fairly competitive space. And the average transaction price when we look at all of the transactions that have happened is about 228,000 rand is the is the average value of an RDP house across the whole deeds registry, 228,000. Obviously, it would be higher in some in some metros and much lower in other areas because it relates to the property market itself. But an area, for example, like Kailicha in Cape Town, has been one of the fastest appreciating neighborhoods in in the city for for for some time. And that's partly because it's coming off of a low base, but also because those property values are growing. They're growing because people have been in the properties and investing in them themselves, but also the city has been investing in the roads and the sewerage and the transport links and then maybe a shopping mall gets developed or something else. So over time, properties do appreciate and they've been improving in value. We do find that there's still a lot of inclination to sell properties informally and in some cases that's people trying to escape the preemptive clause. So the way the policy works is if you want to sell your house within the eight years, you have to offer it first back to the state. The downside with that is the state doesn't often have someone to receive your offer. They just don't have an official who can do that in some provinces can. And you can apply, for example, in the Western Cape, you can apply for a waiver and there's a process that you go through and they process that in other provinces. There's nobody to talk to. And so person stuck, then there's there's a whole lot of media that says, no, you're not allowed to sell it and it's illegal. And so they just, you know, will sell it informally. That's a really bad idea, actually, because we've seen that there are cases where somebody sells it informally 10 years down the line, the seller comes back and says, well, you know, my name's still on the title deed. It's not a proper sale if you don't sell it formally and have it actually transferred within the within the deeds registry. So that's that that is a huge problem. However, there are households and properties that are selling informally. Some of them even with mortgage finance and lenders are becoming increasingly interested in supporting this segment of the market. They see it as the first run of a property ladder. And so you can imagine what what I get, really some I might be like running ahead. I'm sorry. But no, please. I mean, I think of anything and I'm even seeing the views at home. Oftentimes, as I was saying to you, even of air, when we talk about when we talk about affordable housing, and we have all kinds of of our own, I think, notions and assumptions that sometimes, unfortunately, isn't backed with actual data and what we are seeing. And so even as you were talking about having a property, obviously being if you want to sell it within the period, as far as the policies concern, for instance, you actually supposed to first give it to the state, one of the things I would have wanted to even find out what percentage, if at all, do you see of households where they want to sell within that eight year period and know that they will say shouldn't be selling and instead do opt to rather try to hand it back to the state. I mean, is that something that we've even seen? Or it's just one of those things that it's a policy. It's there. It reads beautifully, but we're not seeing that happening. Because as you're saying, we see a lot of sales and traction actions in RTP houses, even one of our viewers, Linda Cicciabella, on our Facebook page say we've seen a lot of people wanting to sell their RTPs to an extent that they don't involve agents. And so some of them want to DIY it as much as they can and don't use an agent and really even keen on how they end up doing it, especially when you say that there are instances where informal sale is happening and there's even finance from financiers that comes on board that just from a sort of high level, how do we see that thing? I mean, I know that we could probably get very granular and that's not the purpose for this conversation, but I'm sure people at home have this perception that usually when you want to buy an RTP house, especially when it's still within that eight year period, if you're going to do it, you're buying cash and sometimes even when it's post that eight year period and you know, this is the rightful seller, people are still like doing it. Cash is pretty much and you're shaking your head when I let you come in and because we also know the horror stories where people have had, whether it's 120,000 rents cash, you have mothers or fathers cashing in their pension and saying this is going to be home for my family and those stories unfortunately don't end with a family having a home for themselves. So perhaps just take us through a bit of that because I can already see that even our viewers at home probably want to be able to connect some of those dots. Yeah, so let me first tell you quickly about this transaction support center that we work with. It's an advice office that's operating currently virtually was originally based in Kailicha and we have a Facebook page, the Transaction Support Center and that really is established to assist households in making their decisions around how to enter into a transaction, whether they're the buyer or the seller and to really support the need to do it formally, you have to do it formally. And I hope you will you will interview the people from the Transaction Support Center because they deal with clients every day and they see some of the horror stories. They also see some of the success stories and there are some. So it is a process that can be mediated and managed. Within the eight year resale restriction, I can't tell you how many people actually apply for the waiver. That data isn't collected by anybody and it would be so good to know. I don't even know if the phone gets answered when somebody tries it. I know in Cape Town it does in the Western Cape because they focused on that. But I'm not I'm not aware of it in other provinces. And then if people sell informally, they really put themselves at risk. Well, if they buy informally, they're especially at risk. It's for the buyer. It's that that's where the problem is. But for the seller, actually, there's a real reason to sell. And we've we've looked at the data. So this data that I've been quoting to you, we buy that data from Lightstone. And then we analyze it specifically for this market. And what we did was we selected all of the properties that that we identified as having been government subsidized properties. And we compared those that sold with a mortgage to those that sold without a mortgage. So these are all formal transactions recorded on the Deeds Registry. Well, in 2019, there were 30,221 sales of RDP units formally without a mortgage. And the average sale price was in the order of just over 100,000 rent per property. There were 3,899 properties that were RDP properties that were sold with a mortgage. And the average sale price was just under 450,000 rent. So probably the houses that were sold with a mortgage were probably better better kept up. They've probably been improved upon or invested in or so on. And they were mortgageable dwellings that the that the lender agreed that they could they could attach a mortgage to. But at the same time, because there was finance involved, the buyer could amortize that cost over a longer period of time, so they have higher affordability. Someone is buying with cash, they're taking the money from their back pocket or from a third party payout or something like that. And their affordability is constrained. The properties that trade without a mortgage, of course, they trade faster because you can do that quick and get it sorted. But I would like sellers to actually pay attention to the real opportunity here that there is a difference between selling without a mortgage and selling with a mortgage. My understanding is that when a property sells without a title deed, the value is even lower. So the value of selling a property formally with a title deed is that you get a better return. And from the buyer's perspective, because they can amortize it over time, it's actually even more affordable, even though the price is higher. We are taking your questions and comments this evening as I'm in conversation with with Kesar Rast, who's the executive director of the Center for Affordable Housing. We're looking at the RDP resale market and taking your questions and comments at home. And I see the first question is coming through from our Instagram, Kershia asking, and this one is coming from a big medicine essay saying, what's the name of the properties that are below the 300K mark? So you're doing that nice breakdown. I think it's the entry entry level entry level market. Yeah, I mean, we came up with those names, but but it's a good way of segmenting at the lower end. Normally, we say everything below a million is like that that's the affordable. Well, there's a lot of variety in that market. And you could start to imagine that somebody earning less, someone earning less than between 3,000 and like 7,000 might be able to afford a property that costs less than 300,000 rand. Well, right now today, the cheapest newly built house. We check this out every year. What is the cheapest house that's brand new on the market? Last year, November, the number was five hundred and thirty eight thousand rent was the cheapest house. So the RDP resale market is really important because it's a rung on the property ladder below that, which means lower income people can start to access it. It's also worth knowing that if you're a first time home buyer, if you've never owned a property before, you can actually access the finance linked subsidy to buy that house. And if you link that with a mortgage, then it actually becomes a it becomes a real possibility. So that is really what's so exciting. We've got, if you look at that, told you that we had two million RDP properties on the deeds registry, right? And a million of those are in the major metros of those eight hundred and fifty thousand, I'll just double check the number quickly here, eight hundred and yeah, about fifty thousand are sorry, nine hundred and five thousand. So of the million that are in the major metro, nine hundred and five thousand are older than eight years. So they're they're not within the preemptive flows, they could be sold right now. The churn rate in that market is less than one percent. If we applied, if people transacted in that market in the same way as the national average, so the national average churn rate was about just under two and a half percent or so, if you applied that just to these houses, that would be about twenty five thousand transactions every year. And I would argue that from a policy perspective, if that's happening below the cheapest house, while that creates an opportunity for purchase for a buyer to come in, it creates a deposit that the seller has to buy the next house. And having more activity, right? Because I think part of certainly from my perspective, part of my frustration when I look at the housing market and especially the lower end market is there are people who are within a certain income level who would probably be able to have means of paying for the mortgage if there was one that was available. Of course, also using making use of the flip subsidy. The reality, though, is that we're not having stock on the market that they are even able to access and access in a you're going to private property.co.za and whether it's a new development with that particular price point, for instance, and not having to wonder or stress that this is an RTP house, isn't a legal sale or whatever the case is. So we're still not adequately servicing that market and they are there. And I think one of the other big things with where we look when we look at RTP houses within the big metros in particular is you've now potentially created, we'll say potential wealth for that family because there are ways that they can also unlock some of that money, whether it is a matter of they now want to sell that property and sell it, we'll say with formerly, where they end up putting it up and the price is four hundred and eighty thousand, for instance, and there is an alternative accommodation that they're able to view and access that they want to get. And perhaps in that eight year period, some of them may have done slightly better economically, perhaps now family members are slightly older, so they're also able to help out in terms of accessing a slightly higher price property. So I think there certainly is a lack of imagination, but also just underservicing that market almost all together. And it's there. We're not servicing it as opposed to it being an instance where it doesn't exist and we can't even make a business case for it because the reality is we can make a business case for it while we're not adequately servicing that market. And that, for me, is probably the failure on all sectors and not just government because even with government and those provisions within the policy when we look at where we are in twenty twenty one, one could argue, well, we know why it was there from the beginning, but now when we look at where we're at, perhaps a policy amendment is needed, then also even from the private sector, when it comes to servicing the affordable housing market and creating we'll always say a value chain where somebody could move from the art deeply house and a different house and it's priced adequately. We're still not seeing that on the market, whereas the demand is there. Here it's a it's a matter of lack of supply, which I think is quite unfortunate, particularly in the big metals, where we also know there's only so much space we're going to have, right? It's not like in rural areas. Here there's only so much space in it. We're building for we're overbuilding for a segment that is is just thinning out more and more and more and we keep building for that segment as opposed to thinking, listen, there's a whole other segment that can be catered to where it would make business sense if we entered into that. But I'm going to work that because this is one of those topics. I'm very passionate about and it keeps me awake at night to think affordable housing is actually one of those things that keeps me awake at night. I want to read some of the quotes, some of the comments that we've got through on our Facebook page of what I'm saying, saying, again, evident people were selling from 90,000. This would be out of the houses. I know it would be tough, but selling a property is not a good idea. And I think that just speaks to sometimes you definitely don't want to be selling a house for 90,000 rounds. And this speaks to what you were saying earlier, Kisse, that when you're then doing it from an informal perspective, you find that even the pricing, you know, tends to be driven down and the person who's buying it also drives our price down, right? Because they're thinking, well, I've got 90K cash. I'm assuming you, you know, you've never had 90K cash in your bank account. Therefore, I'll stand on this offer. Whereas if we're going the formal route, getting, you know, financial institutions involved, then it's a different bulking all together. We've got to put it on course in many instances. The RTP houses are abandoned by owners for many years. Palesa, Zamenilekhodi, saying this is very tricky. There's almost no way of monitoring the unlawful selling of RTP houses prior to the eight year period. And, you know, as we round up, because I can already know going to invite somebody else from the Center for Affordable Housing, when we kind of look at, I'll say the nitocrities of, you know, the sale process, what people should be looking out for, because I'm already seeing some of those questions coming out, so I promise you at home, we'll definitely have a different conversation, where we now look at, because right, this conversation, we're looking at what the sale of the market is and really getting a good sense that we haven't covered on the show. So next time we're going to be looking at the more intricate details, especially with people who deal with this on a day to day basis. When we look at, because as we wrap, when you look at the, you know, the RTP resale market, I think what would we say are some of the, what's the potential for that market? I mean, we've already started talking about it, you know, slightly about where the future potential could be, if at the very least we actually adequately catered for that market and by that market, I mean, people who would be in the market for affordable housing. What are some of the things that we can do better in order to better service that market? I mean, I think a critical issue is market information and really to recognize the potential and the opportunity. Some of the banks are really beginning to recognize that and to say that they will engage. So many people often, they don't even bother going to talk to the banks because they think the banks won't talk back to them. And that's changing. And I think people need to recognize that there are a whole lot of policy issues that need to be addressed. There are urban governance issues as well that need that need to be addressed. But I think a lot of the power is in the hands of the buyers and the sellers to say we are going to insist on a formal property transaction process. And we're going to do what it takes to achieve that. Getting to that point and recognizing that there's value in these properties. If we get to that point and people who are the two million households who have become beneficiaries and of properties that are on the deeds registry, those are real assets and even if just a small percentage of those transact, right, because not everybody is ready to do it or wants to or whatever, but just a small percent, two percent of those transact, you're going to start to see some movement in the market that will create the supplier asking for from the existing stock we already have. And that's going to target what we've been calling the gap market. People who've net they earn too much to get an RDP house, but too little to afford a new build bond house. So that's households earning between what, three and a half thousand and probably fifteen, eighteen thousand random months haven't been able to buy anything. They can now buy in this market. That then creates a seller who has a deposit to buy the next thing, which means that the developer can say, I have a wider collection of buyers who are coming to me and they can raise the finance to go and build more units. We are building far too few houses in what I sort of collectively call the working class market, properties that are worth less than six hundred thousand rand. We're not building enough, even though the state is building in the below three hundred thousand rand that three to six hundred thousand rand. There's not enough happening at all for for the size of our population and the and the profile of our population that can only be facilitated. If you have this resale market that creates entry level buyers who have equity that can then buy the next rung up. I think it's I mean, we're sitting here in a post COVID environment. We need to build the economy of this country. This is domestic growth powered from within that we could really stimulate a whole economy on the basis of this. Our state doesn't have the money to invest as certainly as much as we think is needed in terms of subsidized housing. This approach leverages the investment the state has already made and really supports households being able to improve and access the value in the assets that they have right now. So there's lots of material on our website, all of these all of the statistics we've talked about, there's reports and so on. And I'm very happy to receive emails too. But it's been really, really nice talking to you. No, because it's been an absolute pleasure talking to you. I think this is one of those issues. I am a big visitor of the website. I tend to nerd out over different reports when it comes to housing in South Africa and other emerging markets. And this is really is one of those conversations that keep me awake at night, because we are not servicing. We'll say the majority really actually of the country. And it's a ticking time bomb in so many different ways, because the reality is not everybody is going to get to the point where they're able to afford houses in the 600 or property, because we also know that more often than not, the 600 plus band, certainly in the metros, you're looking mostly at an apartment as opposed to, for example, a house. And so when we when we look at that, not every South African will necessarily get to a point where they've reached that price point. When we're looking at income levels in the country. And so it's almost as though we're also sending a message to people in certain income levels about whether they ought to be able to access home ownership or not access it. And I think in many ways it's a ticking time bomb. So thank you so much for joining us this evening. We're certainly going to have one of your colleagues to come back to us. We'll look at we'll say the integrities of resale when it comes to RTP houses and how it works. I mean, we've received some really great questions even around time frames. And when you're selling it, we're definitely going to have a follow up or certainly a continuation of this conversation as we have a better look at the RTP housing market. But Chris said, thank you so much for joining us this evening. It's been a pleasure to have you on the show. Thank you so much. I really enjoyed it. And that is Kershia Rust, who's the executive director of the Center for Affordable Housing, wrapping up the Wednesday edition of the private property podcast with myself, Osamantouma Kumalo. It has been a pleasure to be with you on the show. I'll be back on your screens tomorrow evening at 7 p.m. But you can look forward to Estie Clarkson bringing you the first time home by show at 8 p.m. Until then, hoping you stay home and stay safe.