Delivering affordable housing solutions

MILL PARK – A BREDASDORP CASE STUDY

Meyer de Waal

South Africa must enlarge its middle class and house as many households as possible in formal shelter.

As a contribution to this noble objective, the development of the Rent2buy concept began in 2007. Over the years the concept has been expanded with new services, product development, industry knowledge, experience, FinTech and PropertyTech solutions.

These innovations all form part of the basis of a unique and comprehensive deferred home ownership solution offered in Bredasdorp – namely the Mill Park Development.

HELP ME BUY A HOME

The National Department of Human Settlements amended the National Housing Code in October 2021. The update relates to the financial interventions for the existing FLISP subsidy.[1] The Housing Code now reads ‘Help Me Buy a Home Scheme’. Previously, the FLISP subsidy was only available to beneficiaries who qualified for a mortgage bond from a financial institution. With the change of policy, the FLISP subsidy has been extended to non-mortgage housing finance facilities. This includes, among others, housing finance facilities other than loans (e.g. instalment sales, and rent-to-own agreements).

The changes in the FLISP policy in the National Housing Code enable the Deferred Ownership concept to be applied as one of the non-mortgage housing finance options. The Deferred Ownership concept is similar to the non-mortgage housing finance solution, this being a “Rent to Own” agreement scheme.

THE STAKEHOLDERS

The Mill Park Development is a joint initiative between the Cape Agulhas Municipality, which provided the land, and the Western Cape Provincial Department of Human Settlements, which provided the funding from the Integrated Residential Development Programme.

ASLA was appointed as the construction company and Implementing Agent.

ASLA appointed a service provider (“My Budget Fitness”) to manage the following services:

• The marketing, consumer housing education, facilitation and approval of end-user finance
• Screening of applicants
• Issuing of FLISP pre-qualification vouchers
• Preparation of legal documents for conventional sales and Rent-to-Own,
• Receiving property finance applications, the processing and submission thereof
• Property transfers and mortgage registrations
• Monthly management of Rent-to-Own buyers
• Rental collection and distribution
• Budget and debt scorecard improvement
• As well as all other processes that are required for beneficiaries to acquire their houses through a “conventional” purchase or a rent-to-own structure.

THE HOUSES

A designated segment of 106 houses will be constructed. Part of the houses will be sold directly in combination with a FLISP subsidy when the beneficiaries qualify for the subsidy. Another part of the houses will be part of the Deferred Ownership project, where beneficiaries will be renting before the transfer to ownership.

Two types of houses are available:

• 2-bedroom houses of 43 m² priced at R467 600, and
• 3-bedroom houses of 55 m² priced at R590 950.

THE BACKGROUND

The Rent2buy concept has been developed and refined by conveyancing attorney Meyer De Waal since 2007.

After its commencement in 2006, the strict interpretation of the National Credit Act restricted the approval of new home loans. This led to a steep decline in property transactions. This triggered the founding and realization of the Rent2buy concept.

Soon it was realized that many Rent2buy applicants have low, bad or no credit profiles, and/or had problems with over-indebtedness. The My Budget Fitness concept, as a service to help aspiring buyers to improve and build up a good credit score and improve affordability was developed to meet this challenge.

Consumer housing education was added, as more than 55% of buyers are first time buyers and they in general lack the knowledge how to get started and complete the biggest financial transaction in their lives.

The FinTech that was developed to calculate online and in real time an aspiring home buyer’s credit score and affordability is one of the key support tools that has been applied to the Mill Park project.

With more than 11 000 monthly online users of this technology, one can accurately and in real time assist a home buyer to determine his or her capability to qualify for a home loan.

The aspiring buyer is thereby also able to check online whether he or she can provisionally qualify for a FLISP subsidy as a first-time home buyer.

THE MILL PARK DEFERRED OWNERSHIP & RENT-TO-OWN PRODUCT

A buyer will enter into an option agreement to buy the property that he or she qualifies for, based on their credit profile and affordability.

The FLISP subsidy that the buyer will qualify for is then brought into consideration to reduce the home loan amount or improve the purchase capacity of the buyer.

A lease agreement is concluded as the buyer will first rent the property for a 2-year period, with the option to purchase the property once the 2-year period expires. A unique feature of the Mill Park Deferred ownership concept is that 50 % of rental paid per month will be saved for the buyer to use as a deposit when the property is bought.

The purchase transaction is completed through the “exercise of the option” to purchase, with a deed of sale that forms part of the sales pack.

For the duration of the 2-year rental period, the Rent-to-Own buyer is assisted by a My Budget Fitness Personal Trainer. The Personal Trainer assists the buyer to prepare a monthly budget through the FinTech tools, improve the credit profile of the buyer, and ensure no further unnecessary debt is incurred and debt, where and if possible, is settled and provides general home ownership education.

Close to the end of the 2-year period, the My Budget Fitness Personal Trainer will assist the buyer to apply for a home loan.

The full deposit saved over 2 years, as well as the FLISP subsidy that the buyer will qualify for will be deducted from the purchase price. This means that the buyer will be able to apply for much lower home loan and thereby be able to negotiate the best possible home loan interest rate and terms.

Once the home loan is approved, the buyer can take transfer of their property. All costs of transfer and bond registration fees are included in the purchase price.

End user finance is already approved, and six financial institutions are available to provide home loans to approved buyers.

Case study

Here is an example of the potential savings for the homeowner who earns R14 000 or more per month:

RESOURCES:

1. Meyer de Waal: meyer@mdwinc.co.za

• https://mdwinc.co.za/
• https://www.irent2buy.co.za/
• https://www.mybondfitness.co.za/
• FLISP Subsidy Calculator

2. Michelle Essink: essink@westerncape.gov.za

• A model for deferred ownership in Cape Agulhas Municipality
• Affordable Housing, Department of Human Settlements
• Meyer de Waal: meyer@mdwinc.co.za
• https://mdwinc.co.za/
• https://www.irent2buy.co.za/
• https://www.mybondfitness.co.za/
• FLISP Subsidy Calculator
• Michelle Essink: essink@westerncape.gov.za
• A model for deferred ownership in Cape Agulhas Municipality
• Affordable Housing, Department of Human Settlements
• Mill Park Development: https://www.millpark.co.za/
• Rode Report 3rd Term 2022.3

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)