South Africa: How to Buy an Affordable Home in the Western Cape

20 September 2021

The Finance Linked Individual Subsidy (FLISP), is an excellent option to assist first-time home buyers within the affordable housing market to become property owners.

This subsidy is currently used to cover the difference between the selling price and mortgage loan and can also be used to cover property and bond registration costs.

If there is a portion of the subsidy remaining after the seller and conveyancer has been paid, it will be transferred into your home loan account and used to reduce your monthly loan instalments, making it more affordable to buy a home.

Households with an income between R3,501 to R22,000 may qualify for the FLISP subsidy if they meet all the qualifying criteria.

It is a well-known fact that a number of people in the affordable housing market have limited options accessing traditional bonds to purchase residential dwellings.

Under the current policy, a potential beneficiary is required to secure a mortgage with a reputable financial institution in order to access the FLISP subsidy. In the Western Cape, between the 2018/19 and 2019/20 financial years, a combined 3,811 applications were received, and a total of 2,935 households successfully accessed FLISP.

The rejection of certain households for the subsidy is usually based on the misrepresentation of marital status or regime, income and or previous property ownership.

In an effort to accelerate and promote property ownership for the affordable housing market, the Western Cape Department of Human Settlements (WCDoHS) has partnered with external role-players - such as financial institutions, conveyancing attorneys and property developers - and granted them access to the Housing Subsidy System (HSS) which allows them to capture and monitor the progress of applications, which drastically improved the turnaround times for processing these applications.

This review stems from the National Ministerial and Provincial Members of Executive Councils (MINMEC) decision of 2018, which proposed that FLISP should be delinked from being a mortgage-only option. This means in the coming months, when the amendments to the Housing Code have been approved at the national level, a bond approval would no longer be the only requirement for the affordable housing market to access FLISP, but a number of varied and non-finance linked options would be on offer.

The delinked FLISP is intended to improve choice and permit flexibility, and will include other non-mortgage finance options supported by:

the beneficiary's pension/provident fund,

a co-operative or community-based savings scheme (such as a stokvel),

the Government Employees Housing Scheme,

any other Employer-Assisted Housing Scheme,

an unsecured loan, and

an Instalment Sale Agreement or Rent-to-own Agreement.

Also, the FLISP subsidy would be permissible where there is no loan and the beneficiary is using their own or other personal resources to supplement the shortfall between the subsidy and the purchase price of the property.

These options will ensure more opportunities and greater access, particularly to those who might find the current process quite stringent. We are therefore continuing to engage our national counterparts to accelerate this process so that it can swiftly be implemented, particularly since we regard ownership as the true form of redress and empowerment.

In the Western Cape, we've already commenced with similar initiatives. One of them is our deferred ownership (rent-to-buy) pilot projects that will occur in the Cape Agulhas and Saldanha Bay Municipalities. This is linked to our credit readiness programme, where after a period of three to five years, and upon clearing their credit records, residents are able to qualify for the FLISP subsidy.

Because certain checks and balances performed by the financial institution when a property is purchased using a mortgage are not present in many of the above scenarios, the WCDoHS is designing Standard Operating Procedures that will include measures to ensure that beneficiaries receive value for money. This means the requirements for habitability assessments and property valuations form part of the subsidy application.

All financial institutions will be subject to the National Credit Act (NCA) and will have to enter into agreements with the subsidy authority, i.e. the WCDoHS in the case of the Western Cape. The FLISP subsidy will also only be payable to the seller when the property is transferred to the beneficiary, protecting both the buyer and the subsidy from abuse.

The revised subsidy once approved may be used to buy an existing house i.e. the secondary market, or a newly built or still-to-be-built house in a housing development. It could also be used to acquire a stand on which a house will be built or to pay for the building of a house on a stand the beneficiary already owns.

While the new draft policy is still being developed, we're preparing our systems and processes to accommodate the new de-linked FLISP subsidy, once implementation commences. It should be noted that although certain sources indicate applications of this nature should be directed via the National Housing Finance Corporation (NHFC), the Western Cape does not subscribe to using this institution and all applications should be submitted directly to the department.

This initiative is yet another demonstration of the WCG's innovative and forward-thinking approach to solve key and pertinent societal issues. We also remain committed to accelerating human settlement delivery, while promoting social inclusion through the development of integrated, resilient, safe and sustainable human settlements in an open opportunity society.

Tertuis Simmers is the Western Cape Minister of Human Settlements.

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