Second Economy Strategy - TIPS · R2,500 – R3,500 R1,500 – R2,500 13,9% 5,6% 11,8% 1,15m 0,46m...
Transcript of Second Economy Strategy - TIPS · R2,500 – R3,500 R1,500 – R2,500 13,9% 5,6% 11,8% 1,15m 0,46m...
Housing, saving & the bridge in between
Second Economy StrategySecond Economy StrategyAddressing Inequality & Economic MarginalizationAddressing Inequality & Economic Marginalization
R b R i 30 S b 2008Rob Rusconi 30 September 2008
Background:Background: Housing finance policy in SAg p y
Background: 1994 housing challenge
Low levels of income(1994 Housing White paper estimates)
Socio-political and environmental issues( g p p ) issues
High expectationsLack of consumer protectionIncome category Percentage Number
householdsPoor consumer educationLow levels of household expenditure dedicated to housing (est. 9% - Mayo)
> R3,500 R2,500 – R3,500R1,500 – R2,500
13,9%5,6%
11,8%
1,15m0,46m0,98m
Limited perceptions of housing: especially as an investmentNon-paymentC i d i l
R 800 – R1,500R 0– R 800
29,0%39,7%
2,42m3,30m
8,30m
Duplicated and poorly targeted subsidiesLack of end-user finance
Crime and violenceOther issues, such as traditional tenure
Lack of end-user financeLack of appropriate retail lending capacityReluctance of formal financial institutions to lend in certain areas and to certain groups
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Players and products:Players and products:Different kinds of lending for housingg g
Players & ProductsPlayers & ProductsEnd user finance Wholesale financeEnd user finance
Mortgage loansPension-backed loans
Wholesale financeLoans to micro lenders and other retail intermediaries
Micro loans Loans to rental / social housing companies
Development loansBridging finance or workingBanks
Life offices Bridging finance or working
capital loans to developersBanks offices
G arantorsSpecialist non-bank Investors
FundsGuarantors
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Standard Bank Dream Start Home loanMortgagesHome loan for housing
Home loanB i d Can be used if for buying/building a new home
Minimum age: 18Proof of ID
Basic product description
Sound credit historyProof of income: 6 months bank statement and latest salary slip if applicableMonthly income: R1 500 – R 6 000 joint incomeProof of residency
Client requirements
Proof of residencyExpenditure statement
Dependent on affordability as determined by the bankLoan size
Minimum: 5 yearsMaximum: 30 yearsLoan term
Cash or cheque at Standard Bank branchDebit orderEFT
Collection method
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EFT
Proof of property: title deedProperty / loan use requirements
Pension backed loans FNB Smart Housing Plan
Pension backed loan
Flexible housing financePension fund savings used as security for loan
Basic product description Pension fund savings used as security for loan
Agreement with bank, employer, and pension fund
Clients:Minimum age of 21
description
u age oEmployed and contributing to pension fund for at least one yearApplicant must be able to afford the loan instalment as per the NCA
Company:Workforce of at least 50 employees
Client/Company requirements
Workforce of at least 50 employeesAgreement of pension fund trustees to provide loans or guarantees
Minimum loan size: R5 000Maximum loan size: Up to 80% of the after-tax benefits in the fund, but depends onLoan size Maximum loan size: Up to 80% of the after tax benefits in the fund, but depends on rules of the fund
Minimum term: 12 monthsMaximum term: 20 years subject to the loan being repaid in full prior to retirement
Loan termMaximum term: 20 years subject to the loan being repaid in full prior to retirement
Minimum monthly instalment: R100 Collected via payroll deduction
Installment and collection method
7Some type of proof of ownership although a title deed is not necessary. In the case of tribal land a letter from the chief would sufficeHousing can be informal
Property/ loan use requirements
Home improvement loan Blue Home Improvement Loan
Personal loan for home improvement
Unsecured personal loanBasic product U secu ed pe so a oaUsed to purchase building material or for the payment of construction related costs
Minimum age: 18
Basic product description
Clientg
Proof of IDProof of income: 3 months bank statement, most recent payslipPermanent employment for at least 1 year
Client requirements
Minimum: R 1 000Maximum: R 15 000
Minimum: 24 months
Loan size
Loan termMaximum: 36 months
Debit orderPayroll deduction
Loan term
Collection method y
Credit is loaded onto the clients Blue Card which the client uses at a Cashbuild store to pay for products purchasedSuppliers other than Cashbuild: valid quotation from the supplier is required.
Property / loan use requirements
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pp q pp qBlue pays supplier directlyProperty requirements – none
Unsecured loanUnsecured personal loan for housing
Unsecured personal loanBasic productCan be used for housing purposes
Minimum age: 21Proof of ID
Basic product description
Proof of IDSound credit historyIncome source: wages or state pensionsProof of income: payslip of letter of employment for those who are formally employed bank statements for at least 3 months for those who are employed in
Client requirements
employed, bank statements for at least 3 months for those who are employed in the informal sectorMinimum personal income (employed): Minimum monthly income of R1 000
Employed: R1 000 – R10 000Loan size Employed: R1 000 R10 000Pensioner: R400 – R900
Employed: 6 – 24 monthsPensioner: 6 – 12 months
Loan size
Loan term
Cash or cheque at selected retailersDebit orderCollection method
9NoneProperty / loan use requirements
Players & Products: Market focus
Bond house: R350 000+
Bank focus:Moderate incomeR7500 Bond house: R350 000
Bond house: R200 000 – R265 000Payroll deductiblePreferred debit orderPension provident securedR3500
R7500
Pension-provident securedMortgageNew housing & secondary (PIPs)Bond house: +-R100 000
Social housing via housing institutions
Home Improvements or Housing loan (not bonded) : R10 000 – R65 000
Social housing
Housing lender focus:
Bond house: R100 000
Home Improvements or incremental
(not bonded) : R10 000 R65 000 gLow-moderate incomePayroll deductible / pensionDebit order (not preferred)
R1500
Home Improvements or incremental housing: R2 000 – R10 000
Debit order (not preferred)Some mortgage / PPUnsecured
10Incremental housingNew housing & secondary (PIPs)
Access frontier:Access frontier: How far is housing finance extending?g g
Access frontier: FSC lending has been good
But success has not been widespread
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The analysis of access to mortgages is restricted to households in the target market with an income of at least R2 500 per month
MarketHousehold is too
poor
Market redistribution
zone579 000
households16% of the
marketCurrently has /
uses the productC ’t ff d 896 000
Does not have access to the
product
marketp
7% of the market258 000 households
Household income
Can’t afford a house (R120 000)
693 000
896 000 households
Total market 81% of the market2.9 m households
3.6 million
p
Household head is
Household income is irregular
Market development
zone
693 000 households
670 000households with an income
between R2 500 and R7 999 where
h h h ld
Does not have / use the product
too old and earns at least R1 000
zone62% of the
market2.3 m
households
670 000 households
Household head / d d b 37 000the household
head is 21 or more
Does not want the 74 000
93% of the market3.4 million households
householdswas/is under debt administration
37 000 households
Has access to the product but does
not use it
product
Potential users
Market enablement 473 000
74 000 households
13Based on a paper entitled “The Access Frontier as an Approach and Tool in Making Markets Work for the Poor” by David PorteousNote: Totals may not add up because of rounding. Source data: FinScope 2006
Potential users zone15% of the market547 000 households
households
It is estimated that around 27% of the market cannot access any housing finance products. Quantified constraints relate primarily to household well-beingg
Estimated level of access to housing finance products in the FSC target markettarget market
(Households with an income of R1 500 – R7 999: 6.7 million households)
Use or have
access to a
Use or have
access to a micro loan:
No access to any
housing financeaccess to a
PBL: 31% micro loan: 71%
finance product:
27%
Use or have
access to 20-year
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20 year mortgage
(R120000): 12%
Access constraints appear to impact on higher income households as well, although the reliability of the estimates may be limited
E i d l l f h i fi d i h FSCEstimated level of access to housing finance products in the FSC target market
(By income sub-segment)
Household income of R1 500 – R2 499
(3 million households)
Household income of R2 500 – R4 999
(2.3 million households)
Household income of R5 000 – R7 999
(1.4 million households)
Use of or19%
61%
41%
79%
Use of or
access t PBL
Use of or access to 20-year
mortgage (R120k):
56%
39%
79%
No access: 21%
to PBL: 41%
Use of or access to
micro loan: 81% No access:
56%
21% 81% No access: 19%
Use of or accessUse of or access to 20
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Use of or access to PBL Use of or access to micro loan No accessUse of or access to 20-
year mortgage (R120k)
Market dynamics:Market dynamics:At the heart of the problemp
Success?
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Success?
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Success?
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Success?
GG
A
PP20
Success?
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Success?
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Success?
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Three key problems
Insufficient attention to the finance affordability of low income households
Those below the threshold can contribute to housing costs
This would reduce the number of units required, and hence the backlog
Need to support incremental housingpp gMay be regarded as ‘politically incomplete’
But would have addressed the backlog much more quicklyBut would have addressed the backlog much more quickly
And introduced less distortion to market dynamics
Opportunity for the development of housing microfinanceOpportunity for the development of housing microfinancePrivate efforts have delivered excellent results
f SC f24
The success of the FSC has shown willingness of the supply side
Long term saving by the poor:Long-term saving by the poor:Six rational hurdles to savingg
#1 Short-sightednessMembers of LSM 1-5 find it hard to save for the long termC t ll b t d b h t i lifCommon to all, but worsened by shortening life expectancy
G i (2008 17)G i (2008 17)
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Genesis (2008:17)Genesis (2008:17)
#2 Affordability constraintsIt is simply difficult to put aside any money
27Genesis (2008:20)Genesis (2008:20)
#3 Community motivationReciprocal giving often takes up excess income
Income Average per month % of income
Expenditure Average per month % of income
Food R 186 28% g p
Regular wages R 343 48%
Remittances received R 201 28%
Child grant R 162 23%
Rent R 137 20%
Crèche R 56 8%
Total credit payment R 52 8%
Casual work R 4 1%
Total income received R 710 100%
Remittances given R 51 8%
Transport to work R 43 6%
Clothing R 41 6%
H h ld d t R 40 6%
Table 4 & 5. Rebecca’s monthly income & expenditureSource: Financial Diaries (2005)
Household products R 40 6%
Shoes R 18 3%
Other energy forms R 15 2%
Entertainment (cinema, etc.) R 13 2%
Genesis (2008:21 & 22, modified)Genesis (2008:21 & 22, modified)
( , ) %
Domestic workers R 8 1%
Transport to shopping R 7 1%
Cell phone (rental, airtime) R 2 -
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Outside phone R 1 -
Total expenditure R 670 100%
#4 Automatic & means-tested incomeSocial Old Age Grant may make it difficult to overcome opportunity costs & means test disincentivizes savingopportunity costs & means test disincentivizes saving
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#5 Unattractive vehiclesProducts seen as inflexible, expensive and unwieldy
T tiTransactions
Death cover
Revolving saving
Long-term saving
30Genesis (2008:13)Genesis (2008:13)
#6 Opportunity costSpecific alternatives are regarded as more important
Housing Education
“You have financial security if you own a house”“You have financial security if you own a house”
“My kids are going to make sure that I am taken care of.”“My kids are going to make sure that I am taken care of.”“It is a lifetime investment”“It is a lifetime investment”
h d hh d h
y g g fy g g f
“[Education.] is an investment “[Education.] is an investment because this child will improve thebecause this child will improve the
“I can have a tenant and they can pay rent “I can have a tenant and they can pay rent to me. I can buy food with the money”to me. I can buy food with the money”
because this child will improve the because this child will improve the status of the family, and be of help.”status of the family, and be of help.”
“You can get buried in your “You can get buried in your own house when you die.”own house when you die.”
“God will give me one to look after me.”“God will give me one to look after me.”
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Saving study: policy implicationsA number of lessons have been learned:
The disincentives of the means test are severe
Compulsion may not always be appropriate
Saving should be defined more broadly than has been hitherto accepted
The consequences of policy must be considered more thoroughly and q p y g yholistically
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