Housing is a substantial retirement asset, a family that has paid off a house by the time of retirement, is “immensely” better off than having to use part of a lump sum or retirement income for the investment.
This is according to Matthew Nell, founder and director of Shisaka Development Management Services. He was one of the speakers at the launch of the Alexander Forbes Benefits Barometer 2016 publication at Vodaworld in Midrand, on Thursday. He highlighted how investing in housing can contribute to financial wellness.
“The ability to own a house depends on affordability creditworthiness and accessibility,” said Nell. Low and middle income households often invest or access accommodation in a number of places as a socio-economic strategy.
They would own a house in a traditional area, which they are retaining for agriculture and social security purposes. At the same time they would have access to a room or an apartment in the inner city because it provides access to better job opportunities close to work, he said. Sometimes, children would live with a member in the family who is a domestic worker in the suburbs, for access to better education.
“The most practical way to become a homeowner or acquire a house of quality, is to access land and build the house in stages,” said Nell. Eventually by accessing smaller loans and building a house, over a number of years, one can achieve a good quality house, he explained.
Constraints to home ownership
Some of the constraints preventing people from accessing home ownership include poor creditworthiness. “A huge proportion of people in South Africa is over-indebted and have tainted credit records,” said Nell. Additionally, people have inadequate access to housing stock and access to mortgage loans. One out of 32 mortgage loan applications, for those earning between R3 500 and R16 000 income, succeed.
There is also a lack of knowledge and experience in the housing market. “This is part of the apartheid legacy. There is an intergenerational deprivation of participating in the housing market,” he said. As a result, there is not enough “socialised” expertise for people to turn to for advice when it comes to making decisions. “There’s a great need for support for low to middle income employees, particularly those who were not able to participate in home ownership.”
The role of the employer
Employees earning less than R25 000 require housing support. Employees who are financially healthy and who are in control of their living arrangements are going to be more settled and productive, said Nell. When employers get involved, they need to empower the employee to make their own, rational decisions about the home and location they want.
Employers should also support effective housing investment. Advice and risk mitigation are critical in the process. “If you over-encumber yourself in debt to get housing the negative impact on financial wellness can be as intense as a positive impact would be if you are making a rational and financially sustainable decision,” he said.
Employers can offer support in the form of information and advice and giving access to housing loans through scheme approaches. Some industries such as mining and forestry provide accommodation. Others offer housing allowances, but this is not sustainable as it results in feeding consumption. A housing grant or subsidy tends to work better than an allowance, he said.
Pension-backed housing loans
Pension-backed housing loans are often an option people take in cases where access to home loans and mortgage loans are not available. It is supportive of an owner building a new house. And they are useful for supporting the upgrading and extension of existing housing, explained Nell.
The Pension Funds Act creates an enabling environment, in which it provides security for loan applications. Normal credit criteria applies and a portion of retirement savings can be pledged as security and deductions for loan installments are made directly from payroll, reducing interest, he said.