Do’s and don’ts for RDP homes

Consequences of the eight-year restriction on selling – Adelaide Steedley, director – CAHF.

SIKI MGABADELI:  The Department of Human Settlements is on an ambitious drive to crack down on the resale of RDP houses, which it believes is exacerbating home-ownership challenges. RDP houses are typically small and low-cost, and subsidised by the government, or free to indigent people. The department says that since 1994 three million RDP houses have been built and delivered, benefiting about 20 million people.

Adelaide Steedley is director of the Centre for Affordable Housing Finance in Africa, and joins us now. Adelaide, thanks for your time this evening. What is the actual reason for the Department of Human Settlements saying that people cannot sell their RDP home for a period of time?

ADELAIDE STEEDLEY:  Absolutely a great question. It’s a very rational response to a problem that’s had unintended consequences.

And so, as I understand it, as they started rolling out the RDP programme, a lot of people got the houses and it was the most valuable thing they had owned, and they immediately turned around and sold it for the cash, because in some ways they needed the cash more than they needed a house.

And so this was a practice to mitigate that, to keep people from just getting their houses and flipping them and then taking the cash. Typically a lot of times what was happening is they were selling them to people who were buying up several of them and becoming sort of small landlords of this important government investment.

And so it was a way to cut back on that. And the unintended consequences are a lot of these housing developments and a lot of the locations where these houses are built are now in quite valuable locations.

SIKI MGABADELI:  I want to talk a little bit about determining the market value and so on, and the unintended consequences. The eight-year period – that seems quite long for someone to watch what could potentially be an asset, something they could take that they could sell at market value, use as collateral for a loan and so on. Is that eight-year holding period optimal?

ADELAIDE STEEDLEY:  I know that Minister Sisulu has said and several officials have said at different times that they wanted the homes to be passed down to the children. In in lot of upper-income families homes are the most valuable asset, of course, and they get passed down to the families. It’s great if you have access to other assets. Your house can be a fixed asset and then you can pass down other things, like trust funds…

In this scenario I think what’s happened is that, with consumer education and the home owner’s opportunities, lives change, people need to move for jobs, people want to move from rural areas into urban areas and they’ve got this house. And so, instead of feeling like they want to pass the house on to their children, they are now saying well, I could sell the house, take that cash, and invest it as a down payment into a more expensive house in the city or a more expensive house up the housing continuum and then continue moving along like everybody else in the upper-income brackets can do. So I end up passing along to my children a house further up the continuum, thanks to the largesse of the government that got the whole thing started.

SIKI MGABADELI:  So what are the unintended consequences, then, would you say, to this holding period?

ADELAIDE STEEDLEY:  Well, I think the first is that families feel they don’t have mobility. They feel like they are  grateful and they appreciate the house that they’ve got, but now it’s I can’t do anything with it. So it’s sitting here.

I think the other thing that we see a lot times is that people do move, because life happens, and they rent the houses out. So a lot of these developments that we see, a lot of the government-sponsored housing that we can see on maps…a substantial number of people in those neighbourhoods are also renting. It becomes a small business setup.

So people figure other ways to extract the value from the house, either running businesses out of it. Rental is a business in a way. And if it’s titled they can borrow against that house if they can find a lender. But it becomes sort of a business opportunity.

But it is a constraint if you want to be able to move. I also think that it constrains the value growth, because one aspect of measuring the market value of homes is the level of transaction in an area and the level of lending. If you can’t sell your house and you can’t borrow against the house because it’s not being transacted, it keeps value down. Surely the government doesn’t intend that to happen. So it’s a thought process, you have to think it out.

SIKI MGABADELI:  Thanks to Adelaide Steedley.

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