South Africa must expand its middle class and accommodate as many households as possible in formal shelters. This is according to Meyer de Waal, conveyancing attorney and founder of Rent2buy, a deferred home ownership model established in 2007.
After commencing in 2006, strict interpretation of the National Credit Act regulated the approval of new home loans. This resulted in a steep decline in property transactions which triggered the establishment of the Rent2buy concept.
De Waal and his team soon realised that many Rent2buy applicants have bad, low or no credit profiles and/or had over‐indebtedness problems. In response, they developed My Budget Fitness, a service to help aspiring buyers improve and build up a good credit score and increase their affordability levels.
Consumer housing education was added to the list of services, as over 55% of buyers are first‐time home buyers who generally lack knowledge about how to get started and complete the most significant financial transaction of their lives.
Over the years, the Rent2buy concept has been expanded with new services, industry knowledge, product development, experience, fintech, and property tech solutions. These innovations form part of the basis for Mill Park, a comprehensive deferred homeownership development in Bredasdorp, Western Cape.
The National Department of Human Settlements amended the National Housing Code in October 2021. It updated the financial interventions for the existing Finance‐Linked Individual Subsidy Programme (FLISP). The Housing Code now reads ‘Help Me Buy a Home Scheme’.
Previously, FLISP was available only to first‐time home buyers who had already qualified for a mortgage bond from a financial institution. With the policy change, the FLISP subsidy has extended to include non‐mortgage housing finance facilities. These facilities include housing finance facilities other than loans, such as rent‐to‐own agreements and instalment sales.
“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 a rent-to-own scheme similar to the non‐mortgage housing finance solution,” says de Waal.
The Mill Park development is a joint initiative between the Western Cape Provincial Department of Human Settlements, and the Cape Agulhas Municipality, which provided the land. The initiative provided the funding from the Integrated Residential Development Programme.
ASLA was appointed as the construction company and implementing agent. ASLA appointed service provider My Budget Fitness to manage the screening of applicants as well as the following services:
- The marketing, consumer housing education, facilitation and approval of end‐user finance.
- Issuing of FLISP pre‐qualification vouchers.
- Budget and debt scorecard improvement.
- Preparation of legal documents for Rent‐to‐Own and conventional sales.
- Receiving, processing and submission of property finance applications.
- Mortgage registrations and property transfers.
- Monthly management of Rent‐to‐ Own buyers.
- Rental collection and distribution.
- All other processes required for beneficiaries to acquire their houses through either a conventional purchase or a rent‐to‐own structure.
Homes
A designated segment of 106 houses will be constructed at Mill Park in Bredasdorp. Some of them will be sold directly in combination with a FLISP subsidy where beneficiaries qualify for the subsidy. Others will be sold as part of the deferred ownership project. Here beneficiaries will be renting before the transfer to ownership.
Two types of homes are available:
- The 43 m² two-bedroom houses are priced at R467 600.
- The 55 m² three‐bedroom houses are priced at R590 950.
De Waal says the fintech they developed to calculate, online and in real-time, a potential home buyer’s affordability and credit score is one of the key support tools applied to the Mill Park project.
“With more than 11 000 monthly online users of this technology, you can accurately and in real-time assist home buyers to determine whether or not they qualify for a home loan. Aspiring buyers can also check online whether they provisionally qualify for a FLISP subsidy as a first‐time home buyer.”
With the Mill Park deferred ownership and rent‐to‐own product, buyers will enter into an option agreement to buy the property they qualify for based on their credit profile and affordability.
The FLISP subsidy for which buyers qualify will then be taken into account to reduce the home‐loan amount or improve the purchasing capacity of the buyers.
A lease agreement is concluded as the buyers will first rent the property for two years, with the option to buy the property at the end of that period.
De Waal says that a unique feature of the Mill Park deferred ownership concept is that 50% of the rent paid monthly will be saved for buyers to use as a deposit when they buy the property.
The purchase transaction is completed by exercising the option to purchase, with a deed of sale that forms part of the sales pack.
During the two‐year rental period, a My Budget Fitness Personal Trainer will assist the Rent‐to‐Own buyers in preparing a monthly budget using the fintech tools, improve their credit profiles, and ensure that no further unnecessary debt is incurred and that existing debt is settled where possible. The trainer will also provide general homeownership education.
Near the end of the two‐year period, the trainer will help the buyer to apply for a home loan. The full deposit saved over the two year period, and the FLISP subsidy for which the buyer will qualify, is deducted from the purchase price. This will allow the buyers to apply for a smaller home loan enabling them to negotiate the best possible interest rate and terms for their home loan.
Once the home loan has been approved, buyers can take transfer of their property. All the bond registration fees and transfer costs are included in the purchase price.
De Waal says that end‐user finance has already been approved for the development, and that six financial institutions are available to provide home loans to approved buyers.
Writer : Sarah-Jane Meyer