Shared ownership: a way up the property ladder?

HOME ownership in South Africa is turning into a hot potato in the runup to the 2014 elections. This after demands by various political parties for state control of private property in the country. Indications are the ruling party’s Reconstruction and Development Plan which aimed to provide every citizen with a decent home, despite its initial successes, has failed largely due to lack of co-ownership incentives. Could shared ownership of property offer a way up the property ladder for ordinary South Africans?

First, let’s take a closer look at the problem. Owning a sub-standard, badly built home has its disadvantages, worse still are the problems faced by those living in informal settlements, those still on waiting lists for housing solutions that seems unobtainable, even after twenty years of ANC rule.

Although a number of social housing schemes have arisen, each claiming to provide gap housing for the poor with banks offering loans to those lucky enough to have full-time employment, and the government’s housing subsidy aiming to bridge the finance gap, this subsidy programme is aimed mostly at key workers with good credit records. The traditional housing market, geared towards the black middle class may be booming with new projects rolling out, but these schemes like the Maboneng precinct in Johannesburg, do not solve the problem of low-cost and affordable housing for the nation’s poor.

In South Africa red tape and bureaucracy prevails with a centralised “Social Housing Regulatory Authority” which aims to regulate social housing schemes. The mandate of the authority is not to assist home ownership per se but rather to regulate and finance the development of rental accommodation. The State housing agency’s website for instance says “we stimulate rental housing through investment, we stabilise rental housing through regulation.” The result is anything but stable.

For starters there is no real focus on ending dependency upon the state and creating incentives beyond a subsidy for home ownership by private individuals, and the schemes touted by the agency essentially represent the needs of banks and developers.

The government-lead programmes, despite their high-minded altruism, are aimed at the interests of capital markets and not the needs of citizens, for instance “social housing is a rental or co-operative housing option which requires institutionalised management…”  The emphasis on “institutionalised management” and  return on investment (ROI) speaks to the bond market and not home-owners. This can be seen in the manner in which social housing projects are turning into get rich quick schemes for investors who already have money.

The National Association of Social Housing Oganisations for instance, which claims to be an independent association of 18 ‘well-established social housing institutions (SHIs) across South Africa” offers its members some form of ownership by mobilising “the collective buying and market power of our members to reduce costs of products and services and increase returns on investment,”  in the process, the needs of the end user, the person who wishes to occupy a property and who may then also want to rent to own, or transact ownership by others means, to part rent and part own, is lost.

Shared ownership, a possible solution

The problem remains that unless one is incredibly well-endowed with capital, you do not stand a chance of purchasing a property outright. The solution to this problem could be incredibly simple. Shared ownership schemes in which part ownership of equity is offered to first time home buyers represents an effective way out of the housing crisis. It all depends upon how these share schemes are administered and whether or not community housing associations are set up in order to cut through red tape and to avoid problems posed by communal and shared living arrangements.

Shared Ownership is a common term referring to low-cost ownership schemes, such schemes may represent a break for those already living in rental or leased accommodation in South Africa.

Shared-ownership gives you, the first time home buyer, the chance to buy a percentage share of a new build property, while you rent the remaining share from a housing association. This makes home ownership more affordable as it reduces the amount required for a deposit, and you only pay the mortgage bond on the share you own.

In the United Kingdom, shared ownership is known as a ‘Help to Buy’ or “First Steps” scheme. Help to Buy is a branded, government funded initiative for affordable home ownership schemes, designed to help people who cannot afford to buy a home that suits the needs of their household.

Over the years several such schemes have been deployed (i.e. part buy/part rent) but the current Help to Buy schemes are generally speaking ‘Equity Loans’ and ‘Shared Ownership’.

Obviously shared ownership (or to use the departmental term), cooperative ownership, is no picnic. There are many pitfalls, for example, what happens when you no longer wish to share, and how does one dispose of the shared asset or find  the means to “staircase” up the property ladder to full ownership? The current legal framework may not necessarily favour the rights of those engaging in shared or fractional ownership, instead of enjoying sectional title ownership one may end up with just a tenancy with an option to purchase the property in the future. Not necessarily a bad thing if you end up purchasing your shares at today’s prices via a subscription to tomorrow.

Shared ownership schemes are really in their infancy in South Africa, where by and large, these arrangements boil down to private contracts between willing parties according to the willing buyer, willing seller principle.

Housing associations which assist first time buyers may therefore be the solution, acting as intermediaries between banks, realtors and developers — the institutional speculators who often unscrupulously exploit first time home buyers who may not be aware of their rights in this regard.

The following is extracted from a guide on shared ownership.

What is Shared Ownership?
Shared Ownership is an affordable home ownership scheme provided by Housing Associations (HA). If you can’t afford to buy outright, you can part buy and part rent your home and it provides a great way in to home ownership.

With Shared Ownership you only need to raise a deposit for the share you are purchasing. You pay a mortgage bond only on the share you buy (25%-75% of the property value) and pay subsidised rent on the share you don’t own. You can normally buy further shares until you own 100% of the property.

Shared Ownership schemes are managed locally by Housing Associations (HA). These associations generally have the backing of municipalities or government.

Dispelling the myths of Shared Ownership
You don’t have to be a Key Worker to be eligible for Shared Ownership.

Being in a well paid job doesn’t rule you out – Shared Ownership is available to customers whose household income is low.

It isn’t poor quality housing in less premium areas – Shared Ownership properties are just as likely to be found in desirable new developments and are often more spacious and have better green credentials than other homes as they have to comply to stringent standards.

How does Shared Ownership work?

Under Shared Ownership, you would purchase a percentage of the property (with a mortgage, cash deposit or combination of both).

The minimum initial share you can buy is 25% (with Housing Association owning the remaining 75%).

The maximum initial share you can buy is 75% (with the Housing Association owning the remaining 25%).

So if you purchased a 25% share, you would take a mortgage out on just this share (you may also be required to cough up a minimum deposit of 10% on your share).

You would then pay a subsidised rate of rent to the Housing Association on the share they own.

You will also have to pay service charges and possibly ground rent. Remember to include these costs when you work out whether you can afford the property.

You can choose to increase the percent you own over time, by purchasing further shares in the property from the Housing Association (minimum usually 10%).

NOTE: You may qualify for a housing subsidy under the government’s Finance Linked Individual Subsidy Programme

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