AA - 2020

Author: Gert Minnaar
STBB Illovo Office
28 October 2020

SA AFFORDABLE HOUSING UNPACKING THE HOUSING ACT AND STATE SUBSIDIES

The Housing Act prevents the voluntarily sale and transfer of a FLISP subsidy house within eight years from date of acquisition.

THE RIGHT TO ADEQUATE HOUSING – In terms of section 26 of the Constitution of the Republic of South Africa everyone’s right to have access to adequate housing is recognised.

Original Article:
July / August 2019 – Unpacking the Housing Act and state subsidies
August 16th, 2019|Legal Matters – By Gert Minnaar

The Housing Act prevents the voluntarily sale and transfer of a FLISP subsidy house within eight years from date of acquisition.

THE RIGHT TO ADEQUATE HOUSING
In terms of section 26 of the Constitution of the Republic of South Africa everyone’s right to have access to adequate housing is recognised.

Section 26(2) describes the state’s obligation regarding this, as follows:

‘The state must take reasonable legislative and other measures, within its available resources, to achieve the progressive realisation of this right.’

This resulted in the promulgation of the Housing Act, 1997 (No 107 of 1997) where Parliament of the Republic of South Africa recognises that:

  • Housing, as adequate shelter, fulfils a basic human need;
  • Housing is both a product and a process;
  • Housing is a product of human endeavour and enterprise;
    Housing is a vital part of integrated developmental planning;
    Housing is a key sector of the national economy; and
  • Housing is vital to the socio-economic well-being of the nation.

NATIONAL HOUSING SUBSIDY PROGRAMMES
The Minister of Housing introduced the Individual Housing Subsidy Programme in terms of section 3(5) of the Housing Act as part of the national housing subsidy programme.

These subsidies provide the poor to low and middleincome households access to government funding for the following two categories:

  • Non-credit linked subsidies: Where the applicant cannot afford mortgage loan finance, the applicant may apply for a subsidy to acquire an existing house entirely out of the subsidy and may supplement this with other funds that may be available to them.
  • Credit linked subsidies: Where the applicant can afford mortgage loan finance, the applicant may apply for a subsidy that is linked to credit from a financial
    institution.

FINANCE LINKED INDIVIDUAL SUBSIDY PROGRAMME (FLISP)

When buying a home for the first time households that earn between R3 501 and R22 000 may apply for a FLISP subsidy, which, depending on the applicant’s gross monthly income, may vary between R27 960 and R121 626.

The income of these households is inadequate to qualify for a home loan from a financial institution for a sufficient amount to purchase a home, but the once-off FLISP subsidy enables them to afford it.

This is, in essence, how a credit-linked subsidy operates as the state’s contribution of a limited housing subsidy, while the balance of the purchase price is funded by credit granted by a financial institution.

SECTION 10A(1) OF THE HOUSING ACT

Section 10A(1) of the Housing Act under the heading ‘Restriction on voluntary sale of state-subsidised housing’ is worded as follows:

‘(1) Notwithstanding any provisions to the contrary in any other law, it shall be a condition of every housing subsidy, as defined in the Code, granted to a natural person in terms of any national housing programme for the construction or purchase of a dwelling or serviced site, that such person shall not sell or otherwise alienate his or her dwelling or site within a period of eight years from the date on which the property was acquired by that person, unless the dwelling or site has first been offered to the relevant provincial housing department.’

This applies to the non-credit linked subsidy but is not restricted to this type of subsidy. It covers every housing subsidy, which will make this requirement applicable in respect of a credit linked subsidy too.

The purpose of this section is to prevent a successful housing subsidy beneficiary from acquiring a subsidy house or subsidy sectional title unit with government
funding, and then abusing this right by selling it off immediately to a third party for short-term financial gain, instead of the beneficiary enjoying the housing benefit for at least the next eight years.

This requirement led to the inclusion of a title condition in the title deeds for subsidy houses and subsidy sectional titles, where the applicants earn R3 500 and less per month and where the subsidy amount is sufficient to acquire such a housing product.

This title condition reads:

‘Subject to the following condition imposed in terms of section 10A of the Housing Act, 1997 (No 107 of 1997), the within mentioned property shall not, without the consent of the relevant provincial housing department, be sold or otherwise alienated within a period of eight years from date of transfer, unless it has first been offered to the relevant provincial housing department.’

SECTION 10B(1) OF THE HOUSING ACT

Section 10 B (1) of the Housing Act, has as heading ‘Restriction on involuntary sale of state-subsidised housing’ and reads, as follows:

‘(1) Notwithstanding any provisions to the contrary in any other law, it shall be a condition of every housing subsidy, as defined in the Code, granted to a natural person in terms of any national housing programme for the construction or purchase of a dwelling or serviced site, that such person’s successors in title or creditors in law, other than creditors in respect of creditlinked subsidies, shall not sell or otherwise alienate his or her dwelling or site unless the dwelling or site has first been offered to the relevant provincial housing department at a price not greater than the subsidy which the person received for the property.’

This section acknowledges the existence of creditors (including financial institutions) that may have established rights in respect of the house or sectional title for which a non-credit linked subsidy or credit linked subsidy was received.

In the case of houses and sectional title units purchased with FLISP subsidies where the owner financed the balance of the purchase price with a mortgage bond from a financial institution, section 10B(1) protects the interest of the financial institution as partner in a credit linked subsidy transaction.

That owner cannot escape the normal commercial consequences like a foreclosure if he defaults on the repayment of his mortgage loan, and the financial institution does not require the consent of the relevant provincial housing department to enforce its right to foreclose.

Even though this section still restricts the sale of the house or sectional title without the consent of the relevant provincial housing department, it allows the financial institution which granted the credit for the balance of the purchase price for this housing product, to sell it without having to get consent from
the relevant provincial housing department.

However, other creditors of and successors in title to the successful FLISP subsidy applicant are still required to offer the property to the relevant provincial housing department at a price not greater than the subsidy that the beneficiary received for the property, before the consent from the relevant provincial
housing department for the sale of this property can be obtained.

CONCLUSION

Section 10B(6) of the Housing Act states that the Registrar of Deeds shall make this endorsement on the title deed of any dwelling or site and such entries in his registers, when necessary, to indicate that the provisions of subsection 10B(1) apply in respect of the dwelling or site.

It is prudent for conveyancers to include the following title condition in respect of the first registration of title deeds for newly acquired FLISP subsidy houses
and sectional title units as it incorporates the requirements of both section 10A and 10B of the Housing Act:

‘SUBJECT TO THE FOLLOWING CONDITION IMPOSED IN TERMS OF SECTION 10 OF THE HOUSING ACT, 1997 (NO107 OF 1997)

A. The within mentioned property shall not, without the consent of the relevant provincial housing department, be sold or otherwise alienated within
a period of eight years from date of transfer, unless it has first been offered the relevant provincial housing department
B. In case of an involuntarily sale, the owner’s successors in title or creditors in law, other than creditors in respect of credit-linked subsidies, shall not sell or otherwise alienate his or her dwelling or site unless the dwelling or site has first been offered to the relevant provincial housing department at a price not greater than the subsidy which the person received for the property.’

When Deeds Office examiners receive and examine transfer documents for FLISP subsidy houses and sectional title units, it allows them to take note of and respond to this title condition by requesting consent from the relevant provincial housing department for the sale of this property, if such voluntary sale was
concluded within eight years from acquisition of the property.

What happens if this title condition was not registered when the FLISP subsidy houses and sectional title units were first transferred? All the rights created in sections 10A and 10B are still in force during the first eight years of acquisition, even if these are not reflected as title conditions in the title deeds of the FLISP subsidy houses and sectional title units.

The enforcement of these sections may pose a challenge, if not reflected as a title condition. The Deeds Office examiners will not have the benefit of a registered title condition noted against the title deed to remind them of the requirements of section 10A and 10B of the Housing Act, and voluntary transfers may be allowed to register within eight years from date of acquisition without the consent from the relevant provincial housing department.

The original article can be viewed here: