Issued by Ismail Joosub on behalf of the FW de Klerk Foundation on 02/09/2024

This article is the third instalment in a series released by the FW de Klerk Foundation as part of the Money Smart Week South Africa (“MSWSA”) initiative, a campaign dedicated to promoting financial literacy and awareness among South Africans. Homeownership is a key aspiration for many South Africans, symbolising stability, financial security and a significant milestone in achieving the constitutional right to adequate housing, as enshrined in section 26 of the Constitution.

However, the journey to homeownership is fraught with challenges, particularly for low to middle-income households. Understanding the financial landscape, including savings, investments and credit management, is crucial to securing and maintaining homeownership. This article explores the intersection of financial literacy, homeownership and the constitutional right to adequate housing, offering insights into the financial strategies necessary for aspiring homeowners.

Is the State Doing Enough to Give Effect to Section 26?

Section 26 of the Constitution enshrines the right of every individual to access adequate housing, compelling the government to implement reasonable legislative and other measures to progressively realise this right within its available resources. Despite this constitutional guarantee, the state’s efforts seem insufficient to address the persistent housing crisis. Recent events, such as the Marshalltown fire in Johannesburg, which tragically claimed 77 lives and the ongoing homelessness crisis in Cape Town, highlight the acute shortage of decent, affordable housing.

According to the FW de Klerk Foundation’s 2023 Human Rights Report Card, systemic challenges continue to plague the social housing sector. A 2023 GroundUp report points to issues like rising construction costs, slow land release and decreasing state grant funding, all of which significantly hinder housing delivery. In Cape Town, where 76% of the population earns below R22 000 per month, only 34% of formal housing caters to this income bracket, leaving many without access to adequate housing. Moreover, extortion and racketeering have disrupted housing projects in the Western Cape, affecting 19 000 beneficiaries and forcing the provincial government to spend R215 million on security.

While some may turn to private housing as an alternative, the realisation of this right is closely linked to financial capacity. The state’s role in supporting low-income families through housing schemes and subsidies is critical, but the aspiration to own private property remains a complex challenge for many, requiring substantial financial literacy and resources. This reality underscores the gap between the constitutional promise of adequate housing and the actual fulfilment of this right, raising questions about whether the state is truly doing enough to meet its obligations under section 26.

Despite these challenges, several laws and regulations are in place to protect homeowners and support the realisation of housing rights. The National Credit Act of 2005 (“NCA”), for instance, regulates credit practices to ensure fair access to finance, while the Consumer Protection Act of 2008 (“CPA”) safeguards homeowners from unfair practices. Additionally, the Housing Act of 1997 and the Rental Housing Act of 1999 provide frameworks for the development and management of housing projects, aiming to enhance security and affordability.

The National Credit Act: Safeguarding Homebuyers

The NCA plays a crucial role in protecting homebuyers by promoting responsible lending practices. According to section 81 of the NCA, credit providers are required to conduct an affordability assessment before granting credit. This means that when individuals seek to purchase a home through mortgage financing, the lender must assess their ability to repay the loan to prevent reckless lending.

Furthermore, section 92 of the NCA mandates that credit providers must disclose all costs associated with the credit, including interest rates, fees and any other charges. This transparency is essential for ensuring that consumers have all the necessary information to make informed financial decisions.

The Consumer Protection Act: Ensuring Fairness in Housing Transactions

The CPA extends its reach to the housing market, providing vital protections for homebuyers. section 48 of the CPA prohibits unfair, unreasonable or unjust contract terms, ensuring that all terms and conditions in housing contracts are fair and that consumers are not bound by one-sided agreements.

Moreover, section 55 of the CPA guarantees the right to safe, good-quality goods, which applies to the purchase of property as well. This means that homebuyers are entitled to receive a home that meets the agreed-upon standards and any defects must be disclosed before the sale is finalised. This provision helps ensure fairness and transparency in property transactions, protecting consumers from deceptive practices.

Moreover, the Housing Act, established to regulate and facilitate housing development, plays a fundamental role in providing a structured approach to housing delivery. This Act promotes equitable access to housing and outlines the responsibilities of various stakeholders in the housing sector. It supports the development of low-income housing and addresses the needs of marginalised communities by providing a legislative framework for the planning, financing and construction of housing projects.

The Rental Housing Act offers critical protections for tenants, focusing on ensuring fair rental practices. It mandates clear and fair rental agreements, sets standards for rental conditions and provides mechanisms for resolving disputes between landlords and tenants. By establishing these regulations, the Act aims to create a balanced and equitable rental market, safeguarding tenants’ rights and promoting stability within rental housing.

The Role of Financial Literacy in Homeownership

Financial literacy is the ability to understand and effectively use various financial skills, including personal financial management, budgeting and investing. In the context of homeownership, financial literacy is essential for making informed decisions about savings, investments and credit management.

1. Savings and Investments

Savings are the foundation of homeownership. Prospective homeowners need to save for a down payment, which typically ranges from 10% to 20% of the property’s purchase price. In addition to the down payment, there are other costs associated with purchasing a home, such as bond registration fees, transfer duties and legal fees. A well-structured savings plan is, therefore, essential.

Investments, on the other hand, can help accelerate the process of saving for a home. By investing in financial instruments, such as fixed deposits, unit trusts, or even the stock market, aspiring homeowners can potentially earn higher returns on their savings. However, it is important to balance risk and return, especially when the goal is to purchase a home within a specific timeframe.

2. Managing Credit

Credit management is another critical aspect of financial literacy in the context of homeownership. Most South Africans rely on home loans (mortgages) to finance the purchase of their homes. However, qualifying for a home loan requires a good credit score, which reflects one’s ability to manage debt responsibly.

A good credit score can result in better interest rates on a home loan, reducing the overall cost of the property. Conversely, a poor credit score can lead to higher interest rates or even the denial of a home loan application. Therefore, it is important to maintain a healthy credit profile by paying off debts on time, keeping credit card balances low and avoiding unnecessary loans.

Women and Homeownership in South Africa

Recent data from Lightstone reveals a significant shift in the South African property market, with women now outnumbering men as property buyers. Women-only buyers account for 38% of all stock owned, compared to 29% for men-only buyers. This trend reflects broader societal changes, including increased financial independence, higher educational attainment and greater career opportunities for women.

This rise in female homeownership is significant for several reasons. Firstly, it highlights the importance of financial independence for women, particularly in a country where women typically live longer than men and face higher rates of divorce. Secondly, it underscores the need for targeted financial education programmes that cater to the unique needs and challenges faced by women in the property market.

Women’s growing presence in the property market also has implications for the broader goal of achieving gender equality, as enshrined in section 9 of the Constitution. By empowering women to become homeowners, South Africa takes a step closer to realising this constitutional ideal.

Challenges in the South African Housing Market

While private homeownership offers numerous benefits, it is not without challenges. The high cost of property, coupled with the economic pressures faced by many South Africans, makes it difficult for many to afford their own homes. The recent surge in interest rates, for example, has significantly increased the cost of borrowing, putting additional strain on households already struggling with high levels of debt.

Another significant challenge is the lengthy and costly process of transferring property ownership. The Deeds Office, which is responsible for processing property transactions, often takes several months to complete the transfer, during which sellers do not have access to the proceeds from the sale. This delay can create financial stress, particularly for those who need the funds to pay off existing debts or purchase another property.

Bridging finance has emerged as a solution to this problem, offering sellers an upfront payment of up to 80% of the sale proceeds while the registration process is underway. However, this option comes with its own risks and costs and sellers need to carefully consider whether it is the right choice for them.

Conclusion

In conclusion, while section 26 of the Constitution guarantees the right to adequate housing, the realisation of this right remains a significant challenge. The state’s efforts to address the housing crisis, such as social housing projects, are often undermined by systemic issues like rising construction costs, slow land release and extortion. This reality highlights the gap between constitutional promises and actual outcomes. Financial literacy plays a crucial role in bridging this gap, as understanding savings, investments and credit management is essential for those navigating the complex path to private homeownership. To further support this right, South Africa has enacted several protective laws, including the NCA and the CPA, which ensure fair practices and enhance transparency in housing transactions.