South Africa

Country Profile

Cape Town, South Africa. []


South Africa is the largest economy in Africa, classified by the UN as a middle-income country. South Africa has well-developed transportation infrastructure, legislation that is largely supportive of private investment, a world-class financial sector, and a well-diversified economy. It’s stock exchange ranks among the top 20 in the world and is the largest on the African continent.  Historically dominated by mining (South Africa is a significant producer of platinum, gold and chromium), the services sector now dominates the economy, employing 65 percent of the labour force. The country has enjoyed growth since its first democratic elections in 1994, which has supported an extensive social security programme providing social grants (child, pension, housing and others) to the majority of the population and considerable public infrastructure investment.  Even so, South Africa continues to be the least equal economy in Africa, with a Gini coefficient estimated to be 0.631 in 2010.  At 23.9 percent in 2011 (up from 23.78 percent in 2010), unemployment continues to be unmanageably high.  Employment in the informal sector is large (12.72 percent in 2011). Public confidence in prospects improving is low, as evident by the on-going service delivery protests and labour union strikes.  A long-lasting and violent strike in August and September 2012 at the Lonmin platinum mine highlighted that it is also the working class who struggle to access some of the most basic services and in particular, adequate housing. 

South Africa has weathered the global economic crisis from a position of strength: the National Credit Act, promulgated in 2005, is attributed with protecting the financial sector from venturing into subprime territory. The prime interest rate is at an all time low of 8.5 percent. Inflation rose in 2011 to 6.09 percent, up from 3.49 percent in 2009.  However, the past year has seen an unprecedented growth in unsecured credit which some fear threatens the financial sector stability of the country.

Following a slow year in 2010, when GDP growth was at 2.8 percent, GDP growth rose to 3.15 percent in 2011, driven by growth in manufacturing.  Real GDP growth decreased to 2.7 percent in the first quarter of 2012, in the wake of a depressed global economy.

South Africa is ranked 35th in the World Bank’s Ease of Doing Business Ranking in 2012.

Access to finance 

South Africa has a sophisticated banking industry that serves the upper-income segments of the population well.  The country has 32 registered banks (18 of these foreign), of which four dominate: Absa Bank, First National Bank, Nedbank and Standard Bank. According to the 2011 FinScope survey, 63 percent of the South African adult population is banked, and 73 percent are financially included, using some financial product or service from the formal or informal sector. Twenty-seven percent of the population is financially excluded and does not use either formal or informal financial products. Of the 34 percent of South Africans that save, only 2 percent are saving for a deposit on a house.

Access to financial services was dramatically improved with the signing of the Financial Sector Charter (FSC) in 2003.  The agreement grew out of requirements in the Black Economic Empowerment Act, which required certain key industries in South Africa to promote transformation in their ownership and management structures so that they reflected the racial population distribution in the country – this being part of the transformation agenda since the 1994 democratic elections.  The FSC had an added feature to other charters, however, in that it also promoted access to the goods and services of the financial services industry for those who had been previously excluded. In terms of the FSC, members of the financial sector collectively committed themselves to extending more than R70 billion (US$ 8,4 billion) of development finance by the end of 2008, including R42 billion (about US$5 billion) for housing finance to low-income earners with a monthly income of between R1 500 and R7 500 (about US$180 - US$900).  In the five years of the FSC, the financial sector actually exceeded its housing finance target, originating R44 828 billion in loans, of which R28 billion (US$3.36 billion) were mortgage loans (the remainder being pension-secured, construction, and wholesale finance, and housing microfinance).  Since then, although the formal targets of the FSC have lapsed, lenders have continued to give attention to what they call the “affordable” market, defining this now to be households who earn less than about R15 000 (US$1 800). After the original FSC target period ended, up to the end of March 2012, a further R19 billion (US$2.28 billion) in mortgage finance was extended to the affordable target market.  A recent (2012) analysis of mortgage loan performance by sub-market found that FSC and affordable target market loans perform generally on par with loans extended to higher income earners.  Performance across the board has taken a dip in recent years, given rising interest rates and the rising cost of living, but this has not been limited to the affordable market.  In fact, this market has performed slightly better, and has comparable cure rates, boding well for ongoing and increased inclusion if housing supply affordable to this market is available. 

Still, mortgage loans in the FSC target market still only comprise a fraction of the overall mortgage book – an estimated three percent. The affordable market has been growing, however.  By the end of 2008, 2.7 percent of all mortgage credit by Rand value and 9.8 percent by loan volume were granted to borrowers earning less than R10 000 per month. By the end of 2011, 6.7 percent of all mortgage credit by Rand value and 18 percent by loan volume was granted to borrowers earning less than R15 000 per month. 

Within 2011, total residential mortgages (banks only) accounted for 29.49 percent of all credit granted and by the end of the year, comprised 61.03 percent of total credit outstanding and 24 percent of GDP. As a percent of GDP, the value of mortgages outstanding has come down from 29 percent last year, illustrating a contraction in the industry as a result of the global financial crisis.

Housing loans secured by the borrower’s pension withdrawal benefit, known as pension-backed loans, are also commonly available in South Africa.  The sector is not well reported upon, however.  Estimates of the size of the industry vary from R5.4 billion (in 2005 – US$771 million) to R17 billion (US$ 2.4 billion).  The Banking Association reports that R4.8 billion (US$686 million) in pension backed loans were originated during the course of the FSC.  Assuming an average loan size of about R20 000 (US$2 857), there are up to 850 000 outstanding pension backed loans.  Default rates are low, reported at 2 percent in 2009.

Since the introduction of the 1994 housing policy, South Africa has had a small but growing housing microfinance industry.  Two state-owned institutions (the National Housing Finance Corporation and the Rural Housing Loan Fund) provide wholesale finance to housing micro lenders, who on lend housing microloans to borrowers seeking to improve their housing.  In most cases, borrowers use this finance to extend their housing – the use of housing microloans for incremental housing delivery is not yet significant as the delivery framework for this does not exist.

The end of the FSC period coincided with a growing awareness of a global financial crisis, as well as rising food and fuel prices, rapidly rising debt levels, and the implementation of the National Credit Act which necessarily constrained access.  In 2008, many banks pulled back quickly from the 100-108 percent mortgages they were offering.  However, once they became more familiar with the new economic world many returned to 100 percent lending for at least the affordable market, noting that these first-time homebuyers would not have sufficient savings or equity to make a deposit.

A key feature in this phase has been the growth of the unsecured lending market, in part as a response to the reduced liquidity among banks given the tightening capital requirements arising from the global financial crisis.  Since Q4 of 2007, the unsecured lending market has grown 28 percent year on year – this is compared with a 4 percent year on year growth in the mortgage market. In the press, lenders have expressed concern regarding pending Basel III requirements, and in response, the Reserve Bank has established a liquidity facility.  However, the unsecured market continues to grow – it is now possible to secure an unsecured loan of upwards of R230 000 (US$ 27 600) from Capitec Bank or R180 000 (US$ 21 600) from African Bank, the two major microlending banks in the market.  Of course, these loans are targeted at higher income earners with affordability for monthly payments of R4000-R6000 (US480-$720).  However, research recently undertaken by Eighty20 found that a significant proportion of households earning less than R15 000 (US$ 1810) monthly have access to and use retail clothing and furniture credit, and credit card facilities.


South Africa’s housing and finance policies have paid explicit attention to housing affordability since 1994.  Understanding that most of the population could not afford housing, and facing an estimated housing backlog of about three million units, the 1994 government implemented an ambitious and far-reaching national housing subsidy programme.  This Reconstruction and Development Programme or RDP subsidy entitled all households earning less than R3 500 (US$ 500) a month and satisfying a range of other criteria to apply for a fully subsidised house.  In terms of the RDP programme, subsidy beneficiaries get freehold title to a 250m2 serviced stand with a 40m2 top structure, entirely for free.  The programme persists today, with a few modifications, and has delivered an estimated 3 million housing units. 

In addition to the RDP subsidy, the 1994 housing policy implemented other measures to enhance access to housing finance and improve housing affordability. These included establishing the National Housing Finance Corporation (NHFC) and the Rural Housing Loan Fund (RHLF) in the mid-1990s, wholesale financiers that continue to provide capital to non-bank housing lenders targeting low-income earners. As a result, South Africa has a small but growing housing microfinance industry.

These government interventions notwithstanding, South Africa has a new housing affordability crisis.  While the estimated 60 percent of the population earning less than R3 500 is eligible for housing subsidies, the cheapest newly built house is about R250 000 (about US$30 000), affordable at current rates to households with an income of about R8 000-R10 000 (US$960-$1200) a month, assuming they have no other debt.  The issue was highlighted by President Jacob Zuma in his State of the Nation address in February 2012, when he introduced a triad of interventions to address the so-called “gap” market, the 20 percent or so who are too rich for the subsidy but too poor to afford the cheapest, newly built house on the open market.  Effective from 1 April 2012, a new Finance Linked Individual Subsidy Programme (FLISP) has been introduced for households earning between R3 501 and R15 000 (US$500- US$1 810) per month.  Accessible only when linked with mortgage finance and used to purchase a new house costing less than R300 000 (US$ 36 218), the subsidy offers beneficiaries a once-off capital contribution of between R87 000 – R10 000 (US$ 10 503- US$ 1 207), depending on household income.  Implementation has been very slow, however, and so the FLISP is not having the impact expected.  A second intervention promotes the delivery of houses costing less than R300 000 with a tax incentive for developers.  The mechanics for the incentive have not yet been finalised, however.  The last intervention is a R1 billion mortgage insurance initiative, to be administered by the NHFC.  This was first announced in February 2010, but to date, nothing has been implemented.  More recently, government has promised that the initiative will be finally launched on 1 October 2012.   

According to Absa Bank’s house price index, in August 2012, the average value of small houses (80 m2-140m2) was about R688 400(about US$82 740, down by 10 percent from the previous year).  At current rates, this would be affordable to someone earning about R18 000 (US$ 2 173), or eight percent of the population). The average house price in Absa’s “affordable” category (40 m2-79m2 and costing less than R500 000), was R332 371 (about US$ 40 000) in the second quarter of 2012.  At current rates, this would be affordable to someone earning about R10 000, or 14 percent of the population.

A key affordability issue has to do with the interest rate imposed by lenders on FSC and affordable market mortgages.  Set at between 2-4 percent above prime, lenders argue that this covers administrative costs and the increased risk of lending in new markets.  Performance data suggests, however, that the FSC and affordable market perform very closely to the so-called normal market.  The premium creates a heavy financial burden on households with the least affordability, and becomes an “access tax” of sorts, making borrowers more vulnerable to economic shock.  In principle, the premium is a risk management strategy by banks to manage, at least in part, the risk of default.  Ultimately it might increase the risk of default.

While affordability challenges remain in the housing sector, access to finance has been so successful that South Africa now faces a serious problem of indebtedness. In the third quarter of 2011, the National Credit Regulator (NCR) calculated that only 39.6 percent of all credit-active consumers were current.  Of the remaining 60.4 percent, just under half (27.5 percent of all credit active consumers) were facing adverse listings, judgments and administration orders.  Given this, the eligibility of these households for housing credit is seriously constrained, undermining housing affordability further. In the absence of affordable housing for purchase, there are also worries that households may be indebting themselves over non-productive, consumption goods that will not enhance their overall wealth as housing would, if it were available. 

Housing supply

Housing supply in the country is dominated by government-subsidised delivery.  The National Department of Human Settlements reports on the delivery of subsidised housing annually.  For the 2011/2012 financial year, the Minister reported having provided qualifying beneficiaries with 180 000 housing opportunities – about the same as the 2010/2011 financial year when 121 879 subsidised units and 63 546 serviced sites were completed. Data showing the total number of new houses registered on the deeds registry suggests that 75 percent of all delivery in 2010 was in the subsidised market.  This emphasis is changing the shape of South Africa’s housing sector.  Already, 58 percent of all properties on the deeds registry are in the so-called “affordable” category, trading at a value of less than R500 000 (about US$60 000) and including an estimated 1.44 million subsidised properties.  Subsidised properties make up about 24 percent of South Africa’s registered property market.

Despite impressive delivery in the subsidised market, the housing backlog persists and is growing.  In 1994, the country had an estimated 300 informal settlements; by 2001 this had grown to 1 066 informal settlements and by 2010, the number had almost tripled, to 2 628.  The backlog is officially defined as 2.1 million units, of which 1.1 million households live in informal settlements in South Africa.  Of these, about 350 000 are not eligible for the housing subsidy that was designed to address this problem.  Because of the affordability gap, these households cannot purchase improved housing even though they could afford some credit.  A further one million households falling outside the subsidy range live in inadequate or overcrowded conditions.

There are a number of reasons why housing delivery is not achieving the levels of scale required to support the population.  A key factor is the availability of serviced land for housing.  Infrastructure backlogs in many of the cities undermine the capacity to deliver affordable and subsidised housing.

Property markets

South Africa has a well-established property market and a world-class cadastral system that offers procedural protection for buyers, sellers and financiers.  According to the World Bank (2012), it takes 23 days to go through the six procedures required to register a property in South Africa.  This process costs an estimated 5.6 percent of the property value – a decrease on last year, improving South Africa’s rank on this indicator by 14, to 76th out of 183 countries in 2012.

Property transaction data is reported on in a myriad of publications and economic analysts rely on this as a key indicator for overall macroeconomic health.  Property prices have been improving since 2009.  According to Lightstone, the affordable segment (properties valued at less than R250 000 or US$35 700) has shown the strongest improvements, with the highest rate of annual inflation, followed by mid value housing (R250 000 – R750 000, or US$ 35 700 - $90 144).  

Policy and regulation

South Africa generally has investor friendly policies and regulations. This has been borne out of deliberate government action to make it a competitive destination. The Wold Bank ranked it second in Sub-Saharan Africa in its Doing Business 2012 survey, after Mauritius and before Rwanda.  South Africa was also ranked first in terms of dealing with construction permits, business access to credit, and protecting investors.

Housing policy in South Africa is at a crossroads.  On-going strike action and service delivery protests have drawn attention to a critical gap in the housing policy framework which undermines the ability of 20 percent of the population, the working class, to meet their housing needs. Key public sector workers are in this gap and their frustration with their housing prospects were voiced in a recent five week strike at the Lonmin platinum mine in Marikana, North West province.  Workers were asking for a three-fold increase in their wages, in part to address their appalling living conditions. 

The Department of Human Settlements is currently involved in a policy rethink, to address the breadth and capacity of the national housing subsidy.  Further, the Financial and Fiscal Commission, a commission of Parliament, is undertaking research on the South African housing finance framework towards public hearings and recommendations to Parliament that it hopes to submit before the end of the year.

At the other end of the spectrum, the persistence of informal settlements across the country is receiving explicit government attention. A policy position put forward by the Presidency’s monitoring and evaluation unit, entitled Outcome 8: Sustainable Human Settlements and an Improved Quality of Household Life, includes the upgrading of 400 000 units of accommodation within informal settlements as a key deliverable for government, by 2014.


Opportunities in South Africa’s housing finance landscape can be found in a variety of market segments.  The most urgent, and significant, is in the affordable market where demand far exceeds supply.  Broadly, this market comprises households earning less than about R16 000 (US$ 2300) household income who might afford housing for less than R500 000 (US$ 71 500).  Already, some developers are beginning to work at the top end of this market segment, delivering houses in the region of R300 000 – R500 000.  Here, there is room for a substantial increase in scale.  The only caveat is the indebtedness profile of the market, which has not been sufficiently studied from the perspective of housing affordability.  At the bottom end of this range, however, is about 20 percent of South African  households who earn too much to access a housing subsidy but too little to afford the current cheapest new house. This market segment is desperate for innovative solutions – solutions which might be found in the resale of government subsidised housing, the delivery of incremental housing on serviced stands, inner city rental, or conversion of office blocks to residential accommodation for sale or for rent.  While the state housing subsidy creates some market distortion in this market, demand should be responsive to alternative housing and financing approaches.


1.    ABSA (2012) Housing Review Third quarter 2012
2.    ABSA House price indices, 10 September 2012
3.    FinMark Trust (2011) Housing Finance Temperature Gauge Vol. 1 No. 2 – Quarter 2 of 2011.
4.    Melzer, I (2010). Assessing access to and performance of FSC loans.  Report prepared for the FinMark Trust.
5.    Melzer, I (2011) Housing Finance: FSC mortgage loan performance.  Report prepared for the FinMark Trust.
6.    Melzer, I (2012) Housing Finance: FSC mortgage loan performance.  Report prepared for the FinMark Trust.
7.    National Credit Regulator (2011) Credit Bureau Monitor, Third Quarter, September 2011.
8.    National Credit Regulator (2012) Consumer Credit Market Report, First Quarter, March 2012
9.    Rust, K (2009). Framing a Finance Strategy for the Human Settlements Department: Current Context, Opportunities and Challenges.  Report prepared by the FinMark Trust.
10.    Rust, K (2011) Considering the potential of the affordable housing market.  Presentation to the 9th Annual IPD Property Investment Conference: Expanding Horizons. July 2011.
11.    South African Reserve Bank (2011) Annual Economic Report
12.    World Bank (2012) Doing Business Survey: South Africa
13.    Centre for Affordable Housing Finance in Africa: 2015 Housing Finance in Africa Yearbook, South Africa Country Page


About the Editor

Centre for Affordable Housing Finance in Africa (CAHF)

The Center for Affordable Housing Finance in Africa is a not-for-profit company with a mission to make Africa's housing finance markets work, with special attention on access to housing finance for the poor. We pursue this mission through the dissemination of research and market intelligence, supporting cross-sector collaborations and a market-based approach. The overall goal is to see an increase of investment in affordable housing and housing finance throughout Africa: more players and better products, with a specific focus on the poor. Our work covers four main areas: (1) understanding housing markets, (2) monitoring housing sector performance, (3) exploring innovation in housing finance, and (4) supporting housing finance market development. Since its formation, the CAHF has come to be known as the most comprehensive and up to date source of information on housing finance in Africa. Our work is available on our website: