Housing Code

Part 3

Chapter 2:
Housing Subsidy Scheme - General Rules

This chapter sets out:

• the general rules on the housing subsidy scheme, including rules for eligibility and subsidy amounts;
• the rules for variations of the subsidy amounts by the PHDB’s;
• what does the subsidy buy?;
• the rules for the payment of residual of non-credit linked individual subsidies and individual consolidation subsidies;
• rules on Hidden Subsidies;
• the reduction of selling prices of certain state financed serviced sites;
• the rules for bridging finance to municipalities and other public sector developers;
• value added tax on subsidies;
• transitional measures in respect of sale and rental formulas; and
• the Housing Subsidy application form.

HOUSING SUBSIDY SCHEME - GENERAL RULES

1. Overview
2. Who is Eligible?
3. How Much Is The Subsidy Worth?
4. What Variations Apply?
5. What Does The Subsidy Buy?
6. Other Conditions
7. Key Points to Remember

Annexures

This chapter makes reference to the following Annexures, which appears at the end of this Chapter.

2.1 Overview

These General Rules apply to:

• individual subsidies
• project-linked subsidies
• consolidation subsidies
• institutional subsidies
• relocation assistance
• rural subsidies

The General Rules have to do with issues including the eligibility criteria, the value of the subsidy, and how the subsidy may be used. In some cases, however, there are exceptions to the General Rules. For instance, specific variations of the subsidy amount available apply to each of the mechanisms in certain cases, over-riding the general rule on the value of the subsidy. Wherever variations apply, these are clearly marked.

In addition to the General Rules, there are also specific rules that apply to specific subsidy mechanisms. For instance, some mechanisms have specific eligibility criteria that apply over and above the criteria specified in the General Rules. These are not explained in this chapter, but are rather explained in the chapter dealing with the subsidy to which they apply.

Back to Top

General Rules

2.2 Who is Eligible for a Housing Subsidy?

2.2.1 Main Criteria

Six main criteria need to be fulfilled in order for a person to be eligible to apply for the subsidy. A person only qualifies for a housing subsidy if:

1. Married or Financial Dependents: he or she is married (in terms of the Civil Law or in terms of a Customary Union) or habitually cohabits with any other person, or he or she has proven financial dependents. (For the purposes of this Code, the word “spouse” includes any partner with whom a prospective beneficiary under the Scheme habitually cohabits.)
2. Resident: he or she is lawfully resident in South Africa (i.e. citizen of the Republic of South Africa or in possession of a permanent resident permit).
3. Competent to contract: he or she is legally competent to contract (i.e. over 21 years of age or married or divorced and of sound mind).
4. Monthly household income: the gross monthly household income of his or her household does not exceed R3 500.00. A prospective beneficiary will be required to submit adequate proof of income, and, in the case of income received through self employment, must sign an affidavit stating the amount earned.
5. Not yet benefited from government funding: neither that person nor his or her spouse has previously derived benefits from the housing subsidy scheme, or any other state funded or assisted housing subsidy scheme which conferred benefits of ownership, leasehold or deed of grant or the right to convert the title obtained to either ownership, leasehold or deed of grant, with the exception of the consolidation subsidy, and relocation grant. A person who received only a vacant serviced site under the previous dispensation on the basis of ownership, leasehold or deed of grant, however, qualifies for a consolidation subsidy. This criterion is also not applicable to persons who qualify for relocation assistance or disabled persons. In the event of a divorce, the terms of the divorce order will determine a beneficiary’s eligibility.
6. First time property owner: he or she is acquiring property for the first time, except in the case of a consolidation subsidy, and relocation assistance. This criterion does not apply to disabled persons.

Note: certain exceptions apply to criteria (a), (e), and (f) in the cases of consolidation subsidy and relocation assistance applications, and applications made by beneficiaries in which one of the household members is disabled. These exceptions are noted in the context of the specific subsidy mechanism to which they apply.

2.2.2 Security of Tenure

Persons will only qualify for housing subsidies where they acquire the secure right to occupy, use or own a property in terms of a tenure form which can be registered with a competent authority. Generally subsidies will be made available only to beneficiaries who acquire registered title to a property either in the form of ownership, leasehold, 99-year leasehold, or deed of grant. Institutions that access institutional subsidies must either own the immovable property or hold registered long-term rights to ensure security of tenure for beneficiaries. In the instance of rural subsidies, beneficiaries must have defined undisputed informal land rights in terms of the Interim Protection of the Informal Land Rights Act, 1996.

2.2.3 Household Income

For the purposes of assessing whether any particular person is entitled to receive a housing subsidy under this Scheme, the income of his or her spouse (if any) shall be added to that person’s income, and “income” shall include:

1. basic salary and/or wages
2. any allowances paid on a regular, monthly basis as part of an employment contract
3. any loan interest subsidy, or other remuneration payable regularly on a monthly basis to the individual (and/or to his or her spouse) by his or her employer
4. any financial obligations met on behalf of the individual (or his or her spouse) by his or her employer on a regular monthly basis
5. any commission payable to the individual (and/or to his or her spouse) on a monthly basis (an average of the most recent 12 (twelve) months will be determined for eligibility assessment purposes)
6. income received through self employment
7. any retirement or disability benefits received on a regular (monthly) basis

Back to Top

2.3 How much is the Subsidy worth?

The following table shows the subsidy amount for which beneficiaries of the different household income categories are eligible to apply, depending on the mechanism they choose:

Monthly Household Income	Subsidy for immediate ownership: Individual, Project, and Relocation subsidy mechanisms	consolidation subsidy (available only to those who have already benefited from a previous state site and service schemes)	Subsidy for rental or installment sale: Institutional subsidy mechanism
R0 – R1500	R16 000	R8 500	R16 000
R1501- R2500	R10 000	R0	R16 000
R2501- R3500	R5 500	R0	R16 000

Table 2. Housing Subsidy Income Categories

2.4 What Variations Apply?

There are only two situations in which the subsidy amounts (see Table 2) may be increased. These are:

• Geophysical Variation: in situations where development costs are particularly high because of locational, geotechnical and topographical conditions
• Disability Variation: in situations where the subsidy is being awarded to a beneficiary where the beneficiary or a member of that beneficiary's household is disabled, a number of variations to the General Rules apply, including a variation to the subsidy amount payable

The rules in respect of each of these are set out in detail, in the following Sections 2.4.1 and 2.4.2:

2.4.1 Geophysical Variation

The normal subsidy amount reflected in Table 2 may be increased by a reasonable amount, not exceeding 15%, in the sole discretion of the PHDB, in order to compensate for abnormal development costs arising from locational, geotechnical and topographical conditions. Each PHDB may identify specific geographic areas within which increased subsidies may be allowed. In respect of each area the PHDB will determine the percentage by which subsidies will be increased. That predetermined percentage increase shall be applied consistently to all subsidies granted in the area in question.

The variation of the subsidy amount is to be applied as an increase to the normal subsidy amount. The concept of such a variation has been introduced for two primary reasons:

• To provide an incentive to developers to develop well located land where people can live close to places of employment or at least close to good transport routes (the location factor). The incentive is further intended to promote the densification of cities and large towns, thereby minimising urban sprawl. No direct adjustments of the subsidy amount based on density criteria are proposed. However, in the selection of projects, it is recommended that the PHDBs should favour projects which make the best use of land.
• To provide compensation for difficult development conditions (the geophysical factor - topographical and geotechnical conditions). The addition to the normal subsidy is not intended to cover actual additional costs that may be incurred in developing a particular area. Rather, the increase is to be applied as a specified amount for projects where specified conditions occur.

Back to Top

2.4.1.1 Principles for varying the subsidy amount

In establishing province specific approaches to varying the subsidy amount, the following principles may be considered:

1. Applying a locational incentive: The argument for applying a locational incentive is to encourage high density development on well located land. This has the benefit of making cities more efficient and allowing more people to live close to places of employment, commercial and social facilities.
2. There should be some upper limit on the proportions of subsidies with higher amounts. In other words, the application of the variation should not be too generally applied. This will avoid major inconsistencies between provinces and will also allow more subsidies to be allocated within the same budget.
3. The variation should be applied in two discreet steps :

• up to 7,5% increase; and
• up to 15% increase.

4. In deciding which areas should benefit from the variation, the following guidelines are proposed :

• The increase may be either for locational factors or for geophysical factors, or a combination of both. The total addition to the normal subsidy amount will not exceed 15%, regardless of whether the factors are applied separately or in combination.
• The variation of subsidy amount for geophysical factors may be applied on the basis set out in Table 3, below:

Table 3. Percentage increase to subsidy for certain geophysical conditions

5. The variation of the subsidy amount for locational factors may be applied on the following basis, on condition that the project

• is a new housing project
• is located not outside the current built up edge of the urban area
• is not in a town or urban settlement that either has a population of less than 100 000 people or where the built up edge most distant from the commercial centre of the town or settlement is less than 4km from the commercial centre:

Back to Top

Table 4. Percentage increase to subsidy for certain locational conditions

 

WHAT DO THESE TERMS MEAN?

A substantial employment node is an agglomeration of commercial and industrial activity, but not exclusively retail centres. The node must be substantially developed and should have the capacity to provide a substantial proportion of employment to the people who will live in the project area.

An established bus, train or tram route must serve to integrate a number of local areas and should not be short feeder routes but significant public transportation runs.

A mixed use scheme is one where housing is developed as part of a project to develop commercial and industrial units, with the intention that such units would employ a substantial proportion of the economically active people housed in the project area. The commercial and industrial units should be constructed at the same time as the housing.

2.4.2 Disability Variation

In situations where beneficiaries who are disabled, and/or where beneficiaries who have a financially dependent disabled person as part of his or her household, apply for housing subsidies, a Provincial Housing Development Board may, at its discretion and with due cognisance of the type of housing product that is to be acquired, increase any subsidy amount by a maximum amount per disabled category, as indicated in tables 5 and 6 below. This addition to the subsidy amount is determined taking into account the severity of a person’s disability. The variation may also, at the discretion of the Provincial Housing Development Board, be provided to a person, parent, guardian or household head who complies with the eligibility criteria for subsidies if that person or member of the household becomes disabled. A number of variations to the General Rules apply in this regard. These variations are set out below.

1. Disabled subsidy applicants need neither be married, co-habiting, nor have financial dependents. This is a variation to the general rule set out in 2.2.1 of this chapter.
2. If a person who has already received state funding for housing becomes disabled, or if his or her dependents become disabled, the PHDB may at its discretion decide to award the beneficiary the variation of the subsidy. This is a variation to the general rule set out in 2.2.1 (e) in this chapter.
3. If a person who has already owned property becomes disabled, or if any of his or her dependents become disabled, the PHDB may at its discretion decide to award the beneficiary the variation of the subsidy. This is a variation to the general rule set out in 2.2.1 (f) of this chapter.

Table 5 Categories of Disability

 

Disabled Category	Purpose of Variation	Variation Amount (R)
A, B, & C	Access to house: 12 square metres of paving and ramp at doorway	720.00
A, B, & C	Kick plates to doors	300.00
A, B, & C	Grab rails and lever action taps in bathroom (enlargement of the area can be done at the expense of the rest of the house)	1 100.00
D	Visual door bell indicators	700.00

Table 6. Variation Amount per Category and Purpose

Back to Top

All subsidy applications by disabled persons must contain the “Medical Form for application for the variation in the subsidy amount in respect of a disabled person" as contained in Annexure A.

The above variations apply in respect of all subsidy mechanisms included in the Housing Subsidy Scheme, that is, project-linked, individual, consolidation, institutional subsidies, relocation assistance and rural subsidies. The amounts per disabled category to meet their special needs remain the same, irrespective of the subsidy amount for which the applicant is eligible.

2.5 What does the Subsidy Buy?

The concept of housing development which forms the golden thread in the Housing Act, 1997, is pertinent to what the subsidy buys, and reads as follows:

“1 (vi) ‘housing development’ means the establishment and maintenance of habitable, stable and sustainable public and private residential environments to ensure viable households and communities in areas allowing convenient access to economic opportunities, and to health, educational and social amenities in which all citizens and permanent residents of the Republic will, on a progressive basis, have access to:

1. permanent residential structures with secure tenure, ensuring internal and external privacy and providing adequate protection against the elements; and
2. potable water, adequate sanitary facilities and domestic energy supply;”

Accordingly, a portion of the subsidy may be utilised for the acquisition of land and the provision of certain basic municipal services, whilst the remainder has to be utilised for the permanent residential structure.

The norms and standards in this regard, determined by the Minister of Housing in terms of Section 3(2) and 3(3) of the Housing Act, 1997 are as follows:

2.5.1 Norms and Standards in respect of Municipal Services

The internal reticulation services that may be subsidised with the housing subsidy are limited to water, sanitation, roads, stormwater and street lighting, subject to a funding limit of a maximum amount of R7 500.00 for the provision of the services and the acquisition of land (including township establishment). To the extent that a basic level of services is regarded justified by the MEC for Housing of the Province concerned, to spend the maximum amount on the permanent residential structure, the level of service must at least comply with the level indicated in the following table.

Type of Service	Minimum Level
Water	Single standpipe per erf (metered)
Sanitation	VIP per erf
Roads	Access to each erf with graded or gravel paved roads
Stormwater	Lined open channels
Street lighting	Highmast security lighting for residential purposes where this is feasible and practicable, on condition that such street lighting is not funded from the CMIP initiative or funding available from other resources.

Table 7: Minimum Level of Services permitted in terms of the National Norms and Standards

Back to Top

1. The maximum 15% variation of the full subsidy amount (R16 000) which amounts to R2 400 to cater for abnormal development costs arising from locational, geotechnical and topographical conditions may be applied (a) for the construction of the services or, (b) on the basis of a combination of the services and the permanent residential structure depending on the requirements of the situation, and should generally be sufficient.
2. There are, however, areas where the conditions are so adverse that the maximum variation of R2400 is insufficient to address abnormal development costs. The MEC may in respect of such areas and at his or her discretion, approve that the following additional amounts from the remaining subsidy be utilised for services, namely:

• excessive slopes: R1025
• sandy soil: R 900
• medium dolomite: R1 950

3. Approval of such additional amounts, is therefore subject to the reduction of the amount for the permanent residential structure by such amounts. This implies that the minimum norm in respect of the size of the dwelling will also reduce. The MEC must base his or her decision regarding the above amounts, the consequent reduction of the amount for the permanent residential structure, and incidental thereto the reduction of the minimum size of the dwelling on the following table:

Table 8: Basis for determining additional amounts of the subsidy that may be utilised in respect of severe geophysical conditions and consequent reduction in minimum size of house.

* As far as normal dolomitic conditions are concerned, the variation of 15% will suffice, while it is not at all feasible and affordable to undertake subsidised housing development in areas with excessive dolomitic conditions.

Back to Top

2.5.2 Norms and Standards in respect of permanent residential structures

The minimum size of permanent residential structures to be provided by means of the balance of the housing subsidy after the provision for basic services, as contemplated in 2.5.1 above, is 30 square metres (gross floor area) on condition that the MEC responsible for housing may approve:

1. the increase of the minimum size where it is feasible to cap the amount in respect of services at a lower level than R7 500, for instance, where construction costs in areas make it practicable, or
2. the reduction of the minimum size of top structure as contemplated in 2.5.1 (c):

• to 27 square metres where approval has been given for utilisation of the maximum additional amounts from the remaining subsidy, in respect of excessive slopes and sandy soil
• to 24 square metres where approval has been given for the utilisation of the maximum additional amount of the remaining subsidy in respect of medium dolomite

3. The engineering norms and specifications regarding permanent residential structures as contained in Annexure A of Part 2 of the Code are to form part of the norms and standards regarding permanent residential structures to ensure quality.

The norms and standards in respect of permanent residential structures will also apply in respect of beneficiaries qualifying for subsidies of R10 000 or R5 500, given the fact that these beneficiaries are able to access external finance to enhance their subsidies.

The National Norms and Standards will not be mandatory in respect of dwellings and or projects that are developed in terms of the Rural Housing Subsidy Instrument, given the fact that rural housing are subsidies of last resort where it may not be possible to implement the standard subsidies such as project linked subsidies, individual subsidies and institutional subsidies. Accordingly, Rural subsidies may be used for any purpose which, in the discretion of the Provincial Housing Development Board, amount to housing purposes. Given the peculiar nature of the in situ upgrading of informal settlements where people have settled on land where township establishment and the installation of engineering services have not yet taken place, the minimum norms and standards will also not be mandatory.

The housing subsidy is to facilitate access by beneficiaries to a wide range of residential property conforming with the abovementioned norms and standards in respect of permanent residential structures, including;

1. a newly constructed single housing unit in respect of which a mortgage bond could be registered;
2. housing units in newly constructed multiple unit complexes, including flats;
3. housing units in reconditioned, or refurbished building;
4. existing housing of any type;
5. upgrade of existing unserviced or minimally serviced settlements;
6. incremental housing schemes, where a serviced site is provided as the first stage, with the residual of subsidies being used for home building purposes.

Back to Top

2.6 Other Conditions

There are eight other types of conditions that apply in terms of the General Rules. These are:

• Payment of residual amounts
• Hidden subsidies
• Reduction of selling prices of certain state financed stands
• Bridging finance
• Zero rating of housing subsidies for Value Added Tax (VAT);
• Transitional measures in respect of sales and rental formulas;
• The Housing Subsidy application form;
• Consecutive transfers

2.6.1 Guiding principles and preconditions for the Payment of Residual Amounts

To enable the PHDB's to manage the payout of the residual of non-credit linked individual subsidies and individual consolidations subsidies, the guidelines that follows have been introduced.

Background

The General Rules basically cater for an individual wishing to apply for a subsidy to purchase a complete housing product or a product which is in the process of being completed for the total amount for which the applicant qualifies.

Goal of Guidelines

It is the intention of these guidelines to facilitate:

• the payment of the residual of the subsidy on transfer of an incomplete housing product [1] (most likely to be a serviced site with or without any superstructure) purchased by an individual using a non-credit linked (individual or project -linked) subsidy such that the beneficiary can then purchase the necessary building materials and labour to complete the housing product, or to purchase a complete top structure package; or
• the payment of the residual amount of the subsidy, when a property with or without a top structure, which has been purchased by a beneficiary using a non-credit, linked (individual or project-linked) subsidy, is transferred. This allows the beneficiary to then purchase the necessary building materials and labour to build a house or to complete an existing incomplete superstructure; or
• the payout of an individual consolidation subsidy where the beneficiary is already the registered owner of a state financed or serviced site.

Provincial Housing Development Boards must develop their own innovative management options in dealing with these cases, subject to the approval of the MEC for Housing, provided that such approaches conform to the guiding principles and preconditions contained herein.

Back to Top

Guiding Principles

These principles are as follows:

1. The beneficiary of the initial subsidy payout must be the same to benefit from the payout of the residual amount. This would mean that the beneficiary would need to be identified both when the subsidy is allocated and when it is spent.
2. The subsidy must be used for housing purposes. The top structure must conform with the norms and standards in respect of permanent residential structures as determined by the Minister of Housing (Annexure A of Part 2 of the Code)
3. The form of support provided must be flexible enough to allow beneficiaries the maximum choice of how to use the residual amount. In particular, it must allow them to opt for as wide a range of housing delivery systems as possible, whether through purchasing complete housing packages or through the incremental construction of houses.
4. The management of the payouts must be simple, easy to administer, and cost effective, particularly since most payouts are likely to be relatively small amounts. This also means that the administrative capacity to manage any payouts must already exist, or should be very easy and inexpensive to obtain.
5. Fraud and abuse of the subsidy system must be prevented and discouraged wherever possible.

Preconditions

In addition to the guiding principles set out in paragraphs 2.6.1 (a - e) above, there are several other factors which must be taken into account in the design of a mechanism to manage the payouts of the residual amount, including the following:

1. Although the beneficiaries involved may well be concentrated in communities, which benefited in the past from site and service schemes, they are also scattered throughout the country.
2. The beneficiary would already have been identified by the PHDB and would already appear on the national housing database. Identification of the beneficiary later should therefore be a simple matter, requiring only the presentation of his or her identity book.
3. Each beneficiary is likely to have highly specific, individual needs, based on where he or she is in the process of building his or her top structure, whether he or she is using formal construction processes or informal incremental processes, etc. Beneficiaries are most likely to want to use the subsidy to -

• support their own self-help efforts at constructing a top structure, so they would need to use the subsidy for the purchase of building materials;
• pay contractors or subcontractors to construct all or part of their top structure.
• purchase complete or incomplete housing products or packages (which utilise any of a range of innovative building technologies), - subject to approved building plans and in respect of alternative building materials and methods, the tendering of agreement certificates issued by the Agreement Boards as contemplated in the norms and standards in respect of permanent residential structures.

4. The residual amounts owing to any beneficiaries are likely to vary considerably in amount, if not within a project (within which the first part of the subsidy was paid out), then certainly across a range of projects.
5. Linked to points (c) and (d), above, is the fact that subsidy beneficiaries are likely to want to use only part of the payout of the residual amount at a time. This is particularly so in the case of incremental housing delivery, where self-help processes are complex and may be sporadic and ad-hoc. If the payout is, say R2 500, the beneficiary may only need to spend R1 500 now, R200 later, and the rest next year. It is true that the availability of residual amounts may enable some beneficiaries to purchase complete or near-complete housing packages rather to opt for a completely incremental approach, but for others the principle of incrementalism must be supported. This requires a flexible mechanism for managing payouts.
6. The simplest option would be to give beneficiaries their subsidies in cash, leaving it to them to decide what to do with the money. The residual amount could however easily be used for purposes other than housing, which fails to satisfy the principle set out above in 2.6.1(b). Alternative means of paying out the residual amount are necessary.
7. Only those suppliers that can assure the PHDBs that they will provide only housing goods and services to subsidy beneficiaries can be accredited. Informal operations, who may find this requirement onerous, should not automatically be excluded, and a mechanism to include them would have to be sought.

Back to Top

Transitionary Measures

Historically, the Provincial Housing Boards were to develop their own options for managing the payouts of the residual amounts of non-credit linked subsidies and individual consolidation subsidies, and to submit these to a sub-committee of the National Housing Board for approval. This sub-committee consisted of the members of the Standing Committee: Targeted Subsidies and Access to Credit and at least two chairpersons of Provincial Housing Boards.

These management options had to be structured on a pilot basis to test the guidelines before they had to be considered for general application.

The Housing Act, 1997 has however abolished the former National Housing Board on 1 April 1998. To the extent that options were approved by the sub-committee and have been implemented with respect to certain beneficiaries, the arrangements with regard to such beneficiaries will remain intact until the residuals have been paid out.

As of the date when this Code will come into effect, approval of non-credit linked subsidies and individual consolidation subsidies where a residual of subsidy is to be managed, will however have to be given on a basis to be approved by the MEC for Housing. The approval will have to be undertaken in the context of the adoption of a Provincial housing programme, that is consistent with National Housing Policy.

2.6.2 Hidden Subsidies

Hidden subsidies refer to the provision of undeclared financial assistance. It is government 's policy that:

1. the housing subsidy must be equitably applied for the purpose for which it was intended,
2. all other national subsidies must be transparently acknowledged, declared and discounted against the housing subsidy in given instances to obviate duplication of funding from different National resources.
3. additional sub national subsidies must be approved by provincial governments, transparently acknowledged and declared.

Other National Subsidies

Except for the Housing Subsidy available in terms of the Housing Subsidy Scheme a range of subsidies are currently available from government for the purposes of development. The various subsidies and the Housing subsidy policy in respect thereof are set out below;

• the Department of Land Affairs offers a Settlement/land Acquisition Grant (Settlement Grant). A person may not receive a settlement grant and a housing subsidy, and vice versa.
• the Department of Constitutional development offers subsidies as part of the Consolidated Municipal Infrastructure Program (CMIP). These subsidies essentially relate to bulk and connector services, and does not affect the housing subsidy which is utilised for specified, internal engineering services and top structures.
• the Department of Water Affairs and Forestry offers subsidies as part of its RDP Water Supply & Sanitation Program. Where these subsidies in respect of water and sanitation have been given and where the beneficiaries are otherwise eligible for housing subsidies, the water and sanitation subsidies must be discounted against the housing subsidies.
• Eskom and the National Electricity Regulator offer subsidies as part of their respective electrification programmes. Consequently, the national "Norms and Standards" determine that electricity may not be funded out of the housing subsidy, with the exception of high mast lighting for residential purposes where this is feasible and practicable, on condition that such street lighting is not funded from the CMIP initiative or funding available from other resources.

Housing Assets from the Previous dispensation

Provincial and local governments may utilise housing assets created in terms of the previous housing dispensation only in accordance with the Housing Act, 1997 and the national housing programmes contained in Part 3 of this Code, for example state financed serviced land may not be provided at a nominal cost or free of charge.

Additional hidden subsidies from sources other than the national fiscus.

The introduction of additional subsidies from Provincial / local government financial sources is allowed on specific authority and at the discretion of Provincial Legislatures, provided that:

• Any additional subsidy must be openly declared, accounted and budgeted for so that all residents in a particular province know who and what is being subsidised, and by whom, and for what amount.
• Special measures be introduced by Provincial Governments to prevent unfairly prejudicing the residents of neighbouring local governments that may be unable to match the financial contribution(s) of more well off neighbours (should such additional subsidies come from local government sources).
• Any increased subsidy be sustainable and replicable for residents throughout the particular province who are in similar circumstances, in future financial years, and that such a subsidy be accessible on open and equal terms to all qualifying within the provincial and local government areas concerned.

Back to Top

These measures can only be finalised following consultation and with the concurrence of the Department of Constitutional Affairs, State Expenditure and the Finance & Fiscal Commission.

In applying their discretion, Provincial Legislatures will however, have to take cognisance of the fact that all initiatives will be for their accounts only, and that Central Government will make no financial provisions for the consequences of any such decision. National Housing subsidy funds may not be utilised for this purpose.

It is often possible for the following types of subsidies to be made available without declaration. If the following subsidies are offered by the relevant authority, they must be transparently declared and acknowledged:

• the provision of serviced land at a nominal cost or free of charge
• consultant fees paid out of departmental budgets and not reflected in the costs of projects
• grants in respect of building materials
• land restitution, especially where improvements have been made to land, i.e. the provision of services
• the use of commercial projects to offset housing development
• bridging finance at very low interest rates not available to all developers
• any additional funds over and above the housing subsidy

The above rules except where additional subsidies are approved by Provincial governments have the following additional implications:

1. Bulk and connector services located outside the boundaries of project sites and which are provided by municipalities / service providers must be financed through internal sources of revenue of municipalities and should not be financed out of housing subsidies.
2. Under normal circumstances the capital costs in respect of income generating services, such as the provision of electricity, water, sewerage and refuse removal should be funded by municipalities or alternatively, public utilities. The capital and operational costs should be recovered through end-­user charges on these services and should not be financed out of housing subsidies.
3. Where income-generating services cannot be implemented at affordable rates, the standard of these services should be reduced to affordable levels. The capital costs may then be included in housing subsidies on the basis as provided for in the “National Norms and Standards in respect of Permanent Residential Structures” (see section 2.5 of this Chapter), and the operational costs should be recovered by way of user charges. Where housing subsidies play a role in financing income generating services, this needs to be reflected in the levels of levies paid by end-­users, regardless of whether these services are operating at a profit or a loss.
4. In certain instances developers have been required to provide income generating services as part of the capital costs of sites while on the other hand, municipalities have included these costs in the levies paid by the purchasers of these sites. This is to the detriment of beneficiaries. If the costs of these services are included in the capital costs of sites, there should be no additional capital cost recovery by way of levies or otherwise.
5. In assessing projects PHDBs should be guided by the following principles :

• Full costing for price and risks. All costs need to be declared and accounted for.
• Full disclosure of sources, terms and conditions of finance. All funding sources, and the terms and conditions, by which it is available, must be transparently acknowledged.

Back to Top

2.6.3 The reduction of the selling prices of certain State-Financed Serviced Stands

In terms of section 12 B (7) (C) of the Housing Arrangements, 1993 (Act no. 155 of 1993), the Minister of Housing had the power to, with the concurrence of the Minister of Finance, prescribe any matter which he or she considered necessary or expedient to prescribe in relation to the control of the South African Housing Fund (SAHF) such as the writing off of certain amounts. Accordingly, the Minister of Housing, with the concurrence of the Minister of Finance, approved guidelines for the reduction of selling prices of state financed serviced stands which have become unduly expensive, on 29 May 1997. (Appendix 1 of Annexure B). Essentially the guidelines delegated the power to reduce selling prices of the state-financed serviced stands, which were developed with loans from the SAHF to the former Provincial Housing Boards (PHB's) subject to full accountability to the former National Housing Board for actions taken in terms of such delegation. The difference (reduction) between the selling prices as determined according to existing policy and the proposed policy would have to be written off against the outstanding SAHF loans. The Ministerial approval was subject to the following conditions:

The result of the application of the policy guidelines as contained in Annexure B must be reported to the Treasury indicating the number of stands valuated according to this newly introduced process as well as the exact financial loss to be written off against the outstanding South African Housing Loans Fund.

Before proceeding to the 4th phase of determining prices as described in Annexure B, Treasury approval must be obtained for the procedure to be followed by the PHB's to determine the selling price of State financed services stands in accordance with the policy guidelines as stipulated in Annexure B.

The selling prices of certain unsold State-financed stands, became unduly expensive as a result of:

• interest on loans owing to the SAHF accumulated over (in some instances) many years;
• installation of levels of services incompatible with market affordability as a result of adverse geotechnical and/or topographical conditions;
• less than optimal location of these properties, and/or;
• the accumulated costs incurred in securing the stands against invasion, while lying vacant for an extended period.

The breakdown of the stands as at the end of November 1997 is set out on the following table.

		ERVEN OWNED BY
PROVINCE	NUMBER OF STANDS	NHB	PREMIER	LOCAL GOVERNMENT
Gauteng	16572	7203	7119	2250
Mpumalanga	9869	-	-	9869
Northern Province	-	-	-	-
North West	4176	176	-	4000
Free State	3824	-	-	3824
KwaZulu-Natal	25151	2127	22407	617
Western Cape	16868	48	4840	11980
Eastern Cape	13721	-	-	13721
Northern Cape	18943	295	290	18358
TOTAL	109124	9849	34656	64619

The historical and current situation regarding these stands:

Serviced stands which belonged to the National Housing Board,

1. were developed by the erstwhile own affairs housing developments boards;
2. vested in the former National Housing Board by virtue of the fact that the Board was the successor in the title to the erstwhile own affairs boards; and now vest in the provincial housing development boards (PHDB's) successors in title to the National Housing Board, in terms of the Housing Act, 1997,
3. were serviced entirely out of the funds of the erstwhile own affairs boards. The PHDB's accordingly have no loan obligations in respect of these erven.

Back to Top

Stands which belonged to the Premier of the government of any particular province,

1. have in the past, been developed by the erstwhile four provincial administrators;
2. vested in the Premier of each province in his/her capacity as successor in title to the relevant administrators.
3. were developed with funds borrowed by the erstwhile provincial administrations from the then National Housing Commission. These loans, together with interest on them, were repayable to the National Housing Board by virtue of the fact that the National Housing Board was the successor in title to the National Housing Commission. This loan debt of the Premiers was however extinguished in terms of section 14 (4) (b) of the Housing Act, 1997 with effect from 1 April 1998, and the serviced stands passed to the relevant PHDB as unencumbered assets.

Serviced Stands which belonged to municipalities,

1. Were serviced by municipalities with funds that were borrowed from the erstwhile own affairs housing and development boards and the National Housing Commission. These loans, together with the interest on them, were repayable to the former National Housing Board by virtue of the fact that the National Housing Board was the successor in title of the erstwhile own affairs housing and development boards and the National Housing Commission.
2. These loan debts were extinguished in terms of section 14 (4) (b) of the Housing Act, 1997 with effect from 1 April 1998. The serviced stands accordingly became the unencumbered assets of the municipalities concerned.

Back to Top

CONCLUSION

In the light of the repeal of the Housing Arrangements Act, 1993, the abolishment of the former National Housing Board and the extinguishing of the housing loan debt of Premiers and municipalities, inter alia, in respect of the serviced stands, the guidelines no longer apply. The basis for the guidelines and accordingly the guidelines themselves have fallen away. The guidelines contained in Annexure 4 accordingly only have application until 31 March 1998.

The stands concerned, to the extent that they have not been disposed of already, must be disposed of in accordance with section 14 (3) (b) of the Housing Act, 1997. This Section provides that:

" (b) Any dwelling or residential erf which has passed to provincial housing development board in terms of subsection (2) and which is -

1. suitable for letting or sale in terms of any national housing programme, must be let or sold by such board in accordance with such programme;
2. not suitable for letting or sale in terms of any national housing programme, must, subject to subsection (8), be let or sold by such board at a fair market value or, if it is not possible to let or sell it, be leased or sold in the best interest of the State at a rental or price approved by the MEC".

The extinguishing of the loan debt of the Premier and municipalities, the provisions of section 14 (3) (b) of the Housing Act, 1997 and the National Norms and Standards in respect of Permanent Residential Structures have the following implications regarding the respective sites:

Back to Top

Vacant Stands

The stands are the unencumbered property of the PHDB's and municipalities. The vacant stands should be sold to subsidy beneficiaries subject to the terms and conditions of the Subsidy Scheme.

Costly levels of services to address adverse geotechnical and/or topographical conditions, should be addressed within the framework of the National Norms and Standards in respect of Permanent Residential Structures.

If it is, despite the foregoing, not possible to sell off the properties in terms of the Housing Subsidies Scheme, section 14 (3) (b) (ii) of the Housing Act, 1997 applies.

Occupied Stands

The stands are the unencumbered assets of the PHDB's and municipalities. Within the ambit of a project linked in situ upgrade or the discount benefit scheme, the stands should be sold at historical cost. This includes land, internal services and township establishment costs, and excludes any interest.

Costly levels of services to address adverse geotechnical and/or topographical conditions should be addressed within the framework of the National Norms and Standards in respect of Permanent Residential Structures.

2.6.4 Bridging Finance: Interim guidelines in respect of the granting of bridging finance to municipalities and other public sector developers.

Until comprehensive policy in respect of bridging finance has been developed, bridging finance will only be granted to municipalities and other public sector developers that are statutorily unable to directly access alternative sources of bridging finance. Such finance will be granted to municipalities and other public sector developers by the PHDB's as loans at market rates of interest for periods up to a maximum of five years for viable prospects in terms of the Housing Subsidy Scheme. Such finance may only be made available in terms of the following allocation criteria.

2.6.4.1 Allocation / Evaluation Criteria

1. The prime interest rate shall be applicable, as determined by the Provincial Administration's bankers, from time to time,
2. The loan shall be a project specific loan and a separate account shall be opened for each project for which a loan has been granted,
3. The continued provision of bridging finance shall be performance related, i.e. the loan facility may be withdrawn should the performance of the borrower with respect to development of the project be considered unacceptable,
4. The peak amount of the loan shall not exceed the total of the subsidies due to the project, i.e. the total amount of the subsidy quota, and the peak amount shall be determined strictly in accordance with the cash flow projections of the project. An increase in the peak borrowings shall only be considered on the basis of a thorough motivation.
5. The period of the loan shall be strictly in accordance with the project duration as defined by the project programme,
6. Bridging finance shall only be provided as a last resort, on the basis of a thorough motivation indicating what other bridging finance sources were applied for and the reasons why the applicant was not successful in obtaining alternative loan finance,
7. The applicant will be required to provide a "Business Plan" for the project including:

1. an overall project budget inclusive of all direct and indirect costs required to effect transfer inclusive of the site selling price,
2. a project programme in monthly intervals,
3. a project cash flow projection in accordance with the project budget and programme, including both expenditure and income from subsidy payments; and
4. the peak loan, i.e. maximum loan required on the basis of the cash flow projections, being the maximum difference between the accumulative expenditure and income.

8. Pending the formulation of comprehensive bridging finance policy, loans may only be made to municipalities or other public sector developers,
9. Before granting bridging finance the PHDB shall have prudent regard to all risk factors involved in relation to both the developer and the project,
10. The provision of bridging finance shall be made conditional upon the addition to the developers' contract of appropriate clauses to be determined by the PHDB, empowering it to take action in the event of default to complete or cause its nominee to complete the project or otherwise to mitigate loss to it and to prospective beneficiaries.

Back to Top

2.6.5 Zero rating of housing subsidies for Value Added Tax (VAT)

2.6.5.1 Background

In terms of a ruling by the former Commissioner of Inland Revenue, housing subsidies fall within the definition of "transfer payments" as contemplated in section 11 (2) (p) of the Value Added Tax Act, 1991, and is subject to VAT at a rate of zero percent (0%). (Annexure C, contains the circular of the Department in this regard, including that of the former Commissioner of Inland Revenue).

On a subsidy of R16000 this means added value to the extent of R1964.91, (i.e.[14÷114] x R16 000).

2.6.5.2 Practical Application of the zero rating

The practical application of the zero rating is illustrated in respect of project linked and individual subsidies (individual ownership subsidies).

• Non credit linked individual ownership subsidies

In the case of a beneficiary who will not apply for loan finance, the developer/seller, as the case may be, will sell the property to the beneficiary at the agreed product price, less the nett amount of the subsidy. The nett amount of the subsidy means the amount of the subsidy payable to the beneficiary, less the amount of any legal fees paid out of the subsidy. The product price (plus any legal fees) is thus equal to the subsidy amount and is therefore subject to VAT at zero percent. All VAT that was paid by the developer in acquiring the property and constructing the house, is referred to as input tax and this input tax is claimed by the developer from the South African Revenue Service. The nett result is that no VAT is payable.

• Credit linked individual ownership subsidies

In the case of a beneficiary who will apply for loan finance, the developer/seller, as the case may be, will sell the property at the agreed product price, less the amount of the subsidy payable to that beneficiary. In this case VAT is payable on the balance of the agreed product price, after the subsidy is deducted. In the case of credit linked subsidies, legal fees may not be defrayed from the subsidy amount.

2.6.5.3 Product Price

Product price includes the total purchase price of the property acquired, including VAT payable on the credit linked portion of the price or transfer duty, but excludes the cost of and incidental to, taking transfer, the cost of registration of a mortgage bond, as well as any arrear rates and taxes due in respect of the property. Transfer costs in the instance of non credit linked individual ownership subsidies and transfer duty may, however, be defrayed from the subsidy amount.

2.6.5.4 Instances where VAT is payable

In some instances subsidies are not zero-rated for VAT purposes, as they cannot be classified as "transfer payments" in terms of the VAT Act, 1997. The subsidies will therefore be subject to VAT presently at the rate of 14%. The matter is presently being pursued with the South African Revenue Service, to see whether a solution can be found. The following apply:

• Institutional subsidies paid to institutions,
• In the case where beneficiaries purchase incomplete housing products, (most likely to be a serviced sites with or without any superstructure), utilising an individual non-credit linked subsidy, and will, on transfer of the property, use the residual of the subsidy amount to purchase building materials and/or labour to complete the housing product, unless there is an agreement between the PHDB and the suppliers, whereby the suppliers will be directly paid by the PHDB. Or in the case of the payment of the residual of the subsidy amount to individuals who are registered owners of state financed serviced stands and apply for individual consolidation subsidies to enable them to purchase building materials and/or labour to construct or enhance their housing product; unless there is an agreement between the PHDB and the suppliers, whereby the suppliers will be directly paid by the PHDB.
• The stages at which the top structure money will be paid to owners, non-owners, occupants and landless people, participating in a people's housing process are set out in the agreement between the Support Organisation and the Provincial Housing Development Board. Those stages are linked to the progress that the owner makes in building his/her house. For example, the first payment could be made to the beneficiary once he/she has excavated foundations, the second payment could be made once the foundations are complete etc. To the extent that this implies that subsidy beneficiaries purchase their own building materials, they will be paying VAT on such material and will not be reimbursed for the VAT paid.

Back to Top

2.6.6 Transitional Measures in respect of Sales and Rental formulas

A few projects which have been undertaken in terms of the previous dispensation, are in the process of finalisation. The rules pertaining to these projects are set out below.

1. In respect of the Sales and Rental Formulas on family housing projects where contracts were awarded prior to 1 July 1993, new individual Sales and/or Rental contracts can as from date of implementation of the Housing Subsidy Scheme, only be concluded in exceptional circumstances and subject to approval by PHDB's. All extensions post 30 June 1993 to such contracts will be dealt with as new contracts, and be subject to the terms and conditions of the Housing Subsidy Scheme, to the extent that contractual obligations to individuals have not yet been entered into by the relevant government as at date of implementation of the Housing Subsidy Scheme.
2. The Discount Benefit Scheme will continue to apply to all State financed housing units already constructed or contracted for by 30 June 1993 and allocated to individuals by date of implementation of the Housing Subsidy Scheme. In instances where exceptions in terms of (a.) above are allowed by the PHDB's, the Discount Benefit Scheme will continue to apply to such housing stock.

2.6.7 The Housing Subsidy Application Form

No subsidy is approved, in respect of a subsidy applicant, unless he or she, in conjunction with the other requirements of the subsidy mechanism, completes the required application form.

Beneficiaries that apply for housing subsidies must submit documentation of proof with their completed application forms. The omission of the required documents of proof will result in the return of the application form to the applicant.

The following documents, if applicable, must accompany, all application forms:-

• a certified copy of the page of the barcoded R.S.A identity document containing photograph of (self and spouse),
• a certified copy of the page of the barcoded RSA permanent residence identity document containing photograph if not a South African citizen,
• a certified copy of a marriage certificate,
• a certified copy of a divorce settlement,
• certified copies of birth certificates of all dependants,
• Proof of disability, (medical form for application for the variation in subsidy amount), (self and/or member of the household)
• A certified copy of most recent payslip, (self and spouse). Should the applicant and/or spouse be self-employed, proof of monthly earnings must be submitted, (where a person is paid weekly, the weekly figure will be multiplied by 4.3 to establish a monthly income),
• Proof of loan granted by lender.

Additional documentation of proof that are required in respect of specific assistance measures will be indicated in the relevant chapter of this part of the Code.

2.6.8 Consecutive Transfers.

Since the inception of the Housing Subsidy Scheme it was found that certain properties, acquired by means of the subsidy were transferred consecutively from buyers A to B and again from B to C to D. In each instance the transferee received a subsidy and the transfers were dealt with as four separate transactions.

Such transactions are not in accordance with the objectives of the Housing Subsidy Scheme nor is it in line with the spirit of the Government's housing assistance initiative. Provincial Housing Development Boards must take the necessary steps to prevent the approval of subsidy applications by beneficiaries involved in such schemes.

2.7 Key Points to Remember

[1] Where the price of the serviced site does not include service connection fees, the equivalent of these fees must be retained by the Provincial Housing Development Board and paid over to the relevant municipality when the connections are made. The subsidy beneficiary must be made aware of this requirement.

Back to Top