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The bureaucratic hurdle in exploiting a R50bn property sector

Inadvertently, it may be pushing RDP-owners toward microlending.

JOHANNESBURG – Millions of South Africans have RDP houses and technically should have access to an asset that would allow them to create wealth: either by using it to get a loan to start a business, mortgage their home or to sell them. However, according the Centre for Affordable Housing and Finance (CAHF) only 36% of the 3.25 million RDP homeowners have a title deed indicating ownership of the property. 

In 1994 the government implemented the Reconstruction and Development Programme (RDP) in order to address the housing inequality and shortages in townships. The building of RDP houses was also initiated to address the lack of property ownership in townships because of the 1913 Land Act that limited the amount of property black people could own to 7%.

However, CAHF coordinator Kecia Rust says that an administrative failing of government prevents RDP home owners from realising the full potential of their property. Where government has attempted to economically empower individuals and address land ownerships inequality by building RDP houses, its follow-through has been poor.

CAHF states that the ownership of a house can be understood as an individual or social asset and individuals can utilise their homes to take out a mortgage or use them as security to take out a loans. Hernando do Soto, an economist largely known for his work on the informal economy, states that property rights are central to unlocking the potential of the informal economy.

Eustace Davie from the Free Market Foundation adds that recognised property ownership in the townships would go a long way in addressing the separation of space inherent in South Africa’s apartheid past. Title deeds, Davie highlights, would allow individuals to develop their own property and ‘normalise’ development so that townships would no longer be dormitories but rather spaces where jobs can be created.

The Free Market foundation estimates that the township property sector in South Africa is worth R50bn, but because the majority of these houses in the township are not legally recognised, this capital is not realised. This is because the process of registering a title deed is littered with inefficient bureaucratic processes.

Peter Meakin, Director at the South African Constitution of Property Rights Foundation says that while it is beneficial for people to have title deeds, people have been lending money from banks without them. This could be because the entire title deeds registry is dysfunctional and that people will circumvent it if it does not suit their needs. 

RDP home owners cannot resell their homes until an eight- year period has lapsed. However, Rust indicates that even though they are aware of this restriction, it doesn’t stop them from reselling their properties without the right paperwork.  These sales unfortunately are not legally recognised and therefore owners cannot access finance using the house as security, which Rust says limits their participation in the formal economy.

While individuals who do not have a title deed will won’t be able to access a mortgage they can still take out a micro-loan. A pilot study by African Bank indicates that a lot of individuals take out loans in order to finance their home improvements.

Zulika van Heerden of GPF Properties a home loan brokerage company, indicates that there has been an increase in the number of individuals seeking to take out loans against their homes. Individuals in the lower income earning sector are often pulled into numerous loans despite tougher regulatory measures presented in the National Credit Act as well as the Consumer Protection Act.

The loans range from R75 000 – R110 000. The challenge is ensuring that individuals do not over-burden themselves with debts and are subsequently unable to live within their means and are then blacklisted. In a country with a booming unsecured lending market, this is indeed a challenge.

As such, the potential of property ownership in an informal economy will depend on a bureaucratic system that government implements and ensures is carried out. Otherwise it will just be another ‘great’ initiative that failed. 


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