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Medium-term housing subsidy move: What it means

30 Oct 2018

From a real estate perspective, the big news coming out of last week's medium-term budget policy statement (MTBPS) was that R1bn of the R50bn worth of government expenditure that is being reprioritised over the next three years will be directed to housing subsidies that assist more low- and medium-income households to access affordable home loans and become home owners.

Medium-term housing subsidy move: What it means

Finance minister Tito Mboweni did not elaborate but we assume that he was referring to boosting the number of subsidies available under the Finance-Linked Individual Subsidy Programme (FLISP) introduced some years ago by the Department of Human Settlements (DHS).

FLISP is intended to assist those earning more than R3,500 a month but less than R15,000 a month (the “gap” market) to qualify for home loans and buy their own pre-owned or newly-built homes – and it is the only government housing programme that immediately brings low and medium-income earners into the formal or “bonded” housing sector.

Consequently, the move to centralise an additional R1bn worth of funding and make it available to those applying for FLISP subsidies is likely to have quite a significant effect on the real estate market over the next three years.

FLISP subsidies depend on household earnings

FLISP subsidies are available on a sliding scale depending on household earnings, with the maximum amount available (to households earning between R3,500 and R3,600 month) being R87,000. These funds can be used to either directly reduce the size of the bond required to purchase the property in the form of a deposit or bridge a shortfall between the loan amount and the property price.

According to the DHS medium-term expenditure notes, some 23,300 FLISP subsidies have been granted to date, and a further 18,700 were expected to be granted in this financial year before the additional R1bn allocation in the MTBPS.

And now, even if every household that applies for a FLISP subsidy were to receive the maximum grant of R87,000, the extra R1bn has the potential to enable at least 12,000 additional families in the gap market to access home loans and acquire their own homes over the next three years.

We are thus delighted with this move and would urge all those seeking home loan pre-qualification prior to launching a FLISP subsidy application to do so through a reputable bond originator.