When the buyer of Smangaliso Sphamla’s family home in Kraaifontein, Cape Town, arrived to move in one day in 2016, it was the first time Sphamla knew it had been sold from under him.
Sphamla’s father had bought the house 16 years ago through the informal market. He did not have the change of ownership recorded at the deeds office. Ten years after that the seller returned, asking to buy the home back. "We told her we could not do that. We’d been in the house for 10 years; we’d added four more rooms," he says. "She threatened to kick us out."
In 2015, the family received a letter from the seller’s lawyers, saying she was selling the property — and in 2016 the new "owners" arrived. "How do you sell one house twice?" asks Sphamla about the matter, which is being heard by the high court in Cape Town.
A similar story is told by Christina, who asked the FM not to use her real name, for fear of victimisation. She sold her reconstruction & development programme (RDP) house in 2010 and bought a bigger one in the township of Delft, Cape Town, for R50,000.
Eight years later, she’s still fighting to get a title deed to the property she bought — and the seller is demanding an additional R150,000, claiming a municipal valuation puts the property at R200,000.
"I was so shocked when she came up with that," says Christina. "After all these years of waiting for her to give me the title deed."
The Centre for Affordable Housing Finance in Africa (CAHF), a development finance institution, says this situation is common when it comes to RDP houses in townships.
Last year, the centre and research consultancy 71point4, with assistance from the National Treasury, launched the Transaction Support Centre, a pilot project aimed at helping RDP homeowners sell their houses on the formal market.
In trying to solve Christina’s dilemma, the centre found that no title deed was ever registered for the house sold to Christina or the one the seller had moved to.
According to the CAHF, only 1.88-million of the roughly 3.5-million government-subsidised houses in SA have registered title deeds.
Many are without deeds because they were built in rural areas, where formal registration of properties is not a norm, while in urban areas deeds were often not issued because there was no underlying plan for the area, or the deed was issued in the name of the wrong person, says CAHF founder and executive director Kecia Rust.
What this means is that most house sales in townships like Delft are done informally. When families outgrow their government-provided houses, they are left with few options but to build an unapproved backyard dwelling, swap houses or sell their property using what the CAHF calls the "affidavit system".
In this system, there are no conveyancing attorneys, no valuations and no bank-backed mortgage finance. Instead, the buyer and seller agree on a price that is informed by no more than what the seller wants and the buyer can afford.
The only documentation that exists to prove a transaction has taken place is an affidavit signed by both parties at a police station. In some instances, a community street committee also signs the affidavit, adding a level of formality to the process.
Without the involvement of a conveyancer, the record of ownership usually remains unchanged at the deeds office — assuming a deed was registered in the first place.
Illana Melzer, engagement manager at 71point4, says informal cash sales are popular because of the convenience they offer. The formal sales process has high transactional costs, and cash-strapped sellers cannot wait months for payment, especially when they need money to buy further up the property chain or to relocate to the rural areas.
The title deed problem is another hurdle in an already muted mortgage market for RDP houses. According to Melzer, banks would rather provide an unsecured loan that could be used to "build a shack that might encroach onto a neighbour’s property" than finance a formal home loan.
Mfundo Mabaso, head of FNB’s home loans growth division, says banks find it too costly to create mortgage accounts for the value at which most RDP houses are sold. This is because the costs associated with a mortgage — estate agents, mortgage origination, staff and branch expenses — are the same regardless of the loan amount.
So if a bank grants a home loan of R50,000 the cost to complete the bond registration process is the same as if the buyer were borrowing R1m. It is more cost-effective, he says, to lend higher amounts, which accrue greater interest.
What this means for the market, though, is that poor people can buy property only if they take a few years to save. And that’s unlikely to change for the foreseeable future.
"Until we make the formal system as good and efficient as the informal system, we will continue fighting a losing battle," Melzer said during a recent workshop on lessons learnt from the Transaction Support Centre.
Since the pilot of CAHF and 71point4 was launched in Khayelitsha in July 2018, the centre has managed the resale of 156 RDP houses — most of which are still in progress. In trying to formalise the sale, the centre helps sellers get proper valuations, does credit and affordability checks for buyers and helps parties with home loan applications. It’s also brought on board law firm Norton Rose Fulbright, which is offering free conveyancing services to reduce transaction costs.
The centre is helping homeowners get title deeds on properties that were never registered, and is facilitating ownership changes by tracing previous owners of houses that were sold on the informal market.
Melzer says some cases are easier to solve than others, adding that the centre is still trying to figure out how to deal with the most complicated ones.
"We couldn’t just pick the low-hanging fruit," she says.
"We have to deal with the issues that make it difficult to attract private sector financing."
One of the reasons for the drive to formalise the trade of RDP houses relates to realising the value of government-subsided houses.
In examining the deeds registry data supplied by Lightstone Property, Rust found that mortgage-backed government-subsidised properties were sold for up to eight times more than those on the informal market. In 2017, just 2,256 RDP houses were sold formally, for about R400,000 each. In contrast, 34,615 were sold on the informal market for an average R70,000.
"The problem is that we are not seeing any growth in the mortgage market. There’s very limited access for low-income earners, or none at all," says Rust. "If you look at the number of resale transactions overall in 2017, 20% were financed by mortgage and 80% were not."
For Peruvian economist Hernando de Soto — author of The Mystery of Capital — formalised property ownership is one way the poor can create wealth for themselves. When people own property, their equity grows over time. So if they sell their property, they can afford to live somewhere better. Importantly, property is something they can leverage — it is collateral they can borrow against.
Some say De Soto’s prescription may not be appropriate for the poorest in SA, living as they often do in areas where land is communal. But Rust says there is a huge market in townships — a "hunger" — for formalisation that would allow the growth of equity.
It’s not that banks aren’t financing the RDP houses — it’s simply that the scale is so small. CAHF data shows that Standard Bank has been the most active in the market, but it financed just 715 of the total 11,000 RDP houses sold in 2017.
According to FNB’s Mabaso, whose company has been working with the Transaction Support Centre, there are about 1.88-million properties (those with title deeds) that banks could finance.
But for that to work, sellers would have to co-operate.
"Sellers are willing to take a big knock in terms of value to get their money immediately because they face serious liquidity constraints," he says. "This market is a hidden economy that we haven’t understood well. The private sector has to come to the party." To this end, Mabaso says FNB is looking to design a product specifically for this market.
But first the focus has to be on formalisation, says Rust. "The bank isn’t going to finance a house where the ownership is unknown. "It’s also not going to give a loan until its assessors are satisfied with the condition of the property."
Once that happens, Rust says, buyers like Christina will have better protection.
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