South Africa’s Affordable Housing Sector struggles with Financing Challenges hindering growth

South Africa’s affordable housing sector is grappling with significant challenges, particularly in access to financing, which hampers its growth. According to the Banking Association of South Africa, affordable properties are valued between R600,000 and R914,000. However, South Africans with lower incomes often struggle to secure formal housing due to limited financing options.

Yedhvir Ramdhani, Senior Manager: Home Loans Strategy and Analytics at Nedbank, identifies limited access to financing as a critical issue. “For low-income households, balancing affordability while managing credit indebtedness remains a challenge. Elevated levels of income inequality, poverty, and job insecurity exacerbate this issue,”

Ramdhani states. He notes that the rapid and unmanaged urbanization has led to millions living in substandard conditions, complicating efforts to address housing needs.

The high-interest rate environment, rising cost of living, and inflation further strain the housing sector. Ramdhani emphasizes the need for sustainable solutions to finance affordable housing and meet urban demands. “Policy makers should adopt a more expansive approach to governance, and banks must offer innovative and inclusive products tailored to affordable housing needs,” he suggests.

Prof. Simphiwe Madikizela from FNB advocates for leveraging the First Home Finance (FHF), previously known as the First Linked Individual Subsidy Programme (FLISP), to assist potential buyers who are financially burdened. “This funding mechanism uses the subsidy as a deposit to lower the loan amount and potentially reduce the interest rate,” explains Prof. Madikizela. He also highlights the importance of collaborating with the National Housing Development Agency to identify prime land for development and suggests facilitating bulk infrastructure funding through local municipalities to address housing backlogs.

Addressing these challenges is crucial for the future of South Africa’s affordable housing market. “Policy interventions, innovative financing models, and stakeholder collaboration are essential to enable home ownership at the necessary levels and in suitable locations,” Ramdhani emphasises.

Calgro M3 CEO Wikus Lategan underscores the broader impact of home ownership. “Owning a home is a significant step toward wealth building. Unlike renting, where costs rise annually, home ownership can become more affordable over time as interest rates decrease and mortgage principal is paid down,” Lategan explains. Calgro M3 focuses on affordable properties priced up to R900,000 and offers two-bedroom family apartments below R600,000.

Despite high interest rates impacting sale volumes, Lategan notes that banks continue to support the affordable sector, providing 100% home loans to qualified buyers with stable jobs and good credit records. The major banks and alternative lenders, such as SA Home Loans and Chartwell, offer favorable terms and flexible repayment options to first-time buyers.

Barry Chapman, CEO of Alley Roads, highlights that high interest rates have led to increased rental demand as people struggle to qualify for home finance. “High rates indirectly affect tenants by driving up the cost of living. Nevertheless, there is significant pent-up demand for quality, affordable housing,” Chapman says. Alley Roads manages over 7,500 affordable apartments and student accommodations, with rental prices between R4,000 and R6,500 per month.

Lategan believes that developing affordable housing projects not only provides stability and security for families but also fosters economic growth. “Affordable housing is essential for community development and social upliftment. By offering quality homes, we support families and contribute to building sustainable, thriving communities,” he concludes.

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