Shacks, shebeens and securitization

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By:
Mark Brown
Published on:

Originally established under the white minority regime to compulsorily house non-white labour outside the cities, South Africa’s townships are now obvious targets for a nascent low-income housing finance market.

With so much natural beauty around it, Cape Town can be an anticlimax for a first-time visitor. For the international business traveller spending most of his time in the central business district, the mix of colonial and contemporary buildings is agreeable but familiar. Architecturally, there is little to distinguish the city from dozens of others from Perth to Pennsylvania where the Dutch and then the British arrived to trade and settle. From street level, even South Africa’s most recognizable landmark, Table Mountain, blends in with the corporate skyline, its flat top forming precise right angles with the skyscrapers. For something more distinctive, many visitors go to a township, where non-white South Africans were forced to live by white minority governments for much of the 20th century. Langa (“The Sun”) is South Africa’s oldest township, created in 1923 – racial segregation was active long before apartheid was formally applied in the late 1940s. Barely 20 minutes from the city centre, you turn off the highway onto a grid of roads flanked by dwellings and local businesses housed in converted freight containers or shacks. On street corners, beef sausages sizzle on barbecues improvised from halves of 40-gallon drums or shopping trolleys, and women prepare boiled sheep heads. Groups of old men sit whiling away the afternoon in the sunny southern hemisphere spring, cooled by South Atlantic breezes. Your driver/guide – who is invariably from the area and on easy terms with the locals – leads you down an unpaved track to a shebeen (from the Irish word for an establishment selling unlicensed liquor). In Langa, this might be a one-room shed with a canvas roof and walls draped over a simple wooden frame. The only light comes from the doorway. In the centre of the dirt floor sit tin pails of umqomboti, the local homebrew. The top of each pail of millet beer is covered in the froth of fermentation, making it look like an outsized cappuccino. As a pail passes from mouth to mouth, the regulars clap and dance to their slow, rhythmic drinking songs. The beer itself is tepid, bitter and gritty, but it doesn’t matter. The people – above all the children who unselfconsciously play with you – are intoxicating. Any unease you might have – for your safety and at the idea of paying to see poverty close-up – evaporates in the warmth of their welcome. The townships are not shantytowns. They were planned and built to house workers forcibly displaced from South Africa’s urban slums, where the authorities feared the mixing of races would exacerbate social problems, and to help regulate the movement of black and mixed-race labour that white farmers feared would leave the land permanently. If you live in a township, it doesn’t follow that you live in a tin-and-timber hovel without power or sanitation. Some of Langa’s 65,000 residents do indeed live in squatter camps, of the kind you will see when you pass another township, Guguletu (“Our Pride”), on your drive into Cape Town from the airport. Others live in converted workers’ barracks, 50 metres long, 10 metres deep, two storeys high and painted yellow. These were first built for single men forbidden to bring their families with them when they came to Cape Town as migrant labourers. Then there are new blocks put up under government housing projects. Laid out like the barrack conversions, they are built from breeze blocks rather than house bricks. Some ground-floor sections are left vacant for a shop or fast-food outlet. Lastly, there are rows of detached bungalows, with small yards or gardens front and back. These originally housed black municipal workers. They would not look out of place next to poorer housing stock in western Europe or the US. A bungalow in Langa costs about R140,000 ($20,760). Banks have been unwilling to lend to borrowers in townships. There is little resale financing, and it can be difficult to repossess township homes. The banks might be right to be nervous. One-third of the financing in and around the low-income housing market is underperforming. But under the country’s Financial Sector Charter the financial industry has committed itself to providing low-income housing finance on a commercially sustainable basis. The FSC defines a low income as between R1,500 and R7,500 per household per month. It’s a big task. AJ Rothman, director, securitization, at Standard Bank, told IMN’s third annual South African securitization and debt capital markets conference in Cape Town last month: “This is a R100 billion problem.” The banks are making a start. Absa and Standard Bank have introduced fixed-rate mortgage products. This is a key development. “Borrowers in this market simply can’t be exposed to interest rate volatility,” said Rothman. Bankers are also talking about wholesale refinancing in the debt markets. South African investors are comfortable with residential mortgage backed securities but there are problems with securitizing low-income housing finance. Investors need to take pre-payment risk or hedge it. Lack of hedging capacity could put a brake on the market. A viable callable bond market is needed to help hedge exposure to fixed-rate repayments. Ultimately, the government has to get involved as some kind of first-loss credit underwriter. Paul Crawford, fixed-income portfolio manager at RMB Asset Management, told the IMN conference: “If the loss given default on any house is 100%, that just changes the tranche thickness. We need to stop talking about the mechanics of tranching risk and do it. The government has to come to the party.” A trip to Langa is one of the quickest ways to fall in love with Cape Town. Low-income housing finance deserves to succeed here.

The government is committed to helping 2 million households with regular incomes to own or improve their homes, so there’s a good chance it will.