Housing Code

Part 3

Chapter 4: Housing Subsidy Scheme/Individual Subsidies

1. Overview
2. Eligibility and Other Conditions for Individual Subsidies
3. Non-Credit Linked Subsidies
4. Credit Linked Subsidies
5. Key Points to Remember

Annexures:

This chapter deals with the rules for individual subsidies. These rules relate to the application procedures to be followed by households who wish to apply for individual subsidies, both in respect of credit linked and non-credit linked subsidies. It also sets out the procedures to be followed by the PHDBs in respect of awarding the subsidies, and the requirements of other roleplayers including developers and conveyancers. Finally, it sets out administrative guidelines for PHDBs in respect of the appointment of a conveyancer and the allocation of funds.

4.1 Overview

The individual subsidy mechanism has been available since 5 June 1995. Individual households may apply for the subsidy when they want to buy an existing house or a residential property with or without a completed top structure, that is to be developed, as part of a project that is not approved in terms of Chapter 3 of this Part of the Code. The subsidy is available on a first-come, first served basis (these subsidies can only be granted subject to the availability of funds), and can either be linked to a loan or awarded on its own, as set out below:

• Application forms for non credit linked individual subsidies are available from the PHDB and accredited Municipalities. Applicants awarded this type of subsidy will fund the purchasing of the property out of the subsidy alone, possibly adding savings.
• Application forms for credit linked individual subsidies are available from accredited financial lenders (a list of these is available from the relevant PHDB's). In this case, the applicant applies for a loan at the same time as applying for the subsidy. The property will be funded out of both the subsidy and the additional loan.

The individual subsidy cannot be used to rent or lease property. It is only available for households wishing to acquire individual ownership.

Chapter Content

This chapter considers:

• Eligibility & Other Conditions: for individuals accessing the individual subsidy scheme
• Application: for both the credit linked and non-credit linked mechanisms
• How the PHDB Judges the Application: including the time it should take
• After Approval: including registration of transfer
• Additional Requirements in terms of the Savings Route for Credit Linked subsidies

For more information on the policy content behind the individual subsidy mechanism, see Section 3.3 in Part 1 of this Code.

Finally, the chapter ends with a focus on the PHDB’s relationship with conveyancers, and a summary of key points to remember.

 

The General Rules for eligibility, as well as for the value of the subsidy, what it can buy, and the variations in terms of geophysical conditions or for households with a disabled member, all apply. For more detail on these, see Chapter 2 of this Part of the Code, sections 2.2 - 2.6.

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4.2 Eligibility and Other Conditions for Individual Subsidies

4.2.1 The General Rules for Eligibility.

(see Chapter 2, section 2.2 of this Part of the Code).

In addition to the general rule for eligibility, the following rules also apply:

1. A person may apply for and be granted an individual subsidy where he or she wishes to acquire property offered in the market place. The residential properties acquired by applicants may be completed properties or may be properties that are either in the process of construction, or properties that are still to be constructed. The residential property could also be

• part of a housing construction project, which has not been approved by the PHDB in terms of the project-linked subsidy mechanism. This could arise where the project is, for example, too small to warrant the approval process contemplated in Chapter 3 of this Part of the Code.

Individual subsidies will only be awarded where beneficiaries will acquire ownership, leasehold rights or deeds of grant in respect of a residential property.

2. Beneficiaries must be given the widest possible freedom of choice in the purchase of a property. It remains, however, within the discretion of the PHDB to approve the granting of any individual subsidy. Its decision may be guided by financial and other resource constraints, or priorities determined by the MEC.
3. If the property has not been transferred to the beneficiary within three months from the date upon which the PHDB pays the subsidy amount in respect of that property to the conveyancer or to the lender, as the case may be, the PHDB may withdraw the subsidy. Beneficiaries must not apply for the subsidies, if, at the time they apply, the properties cannot be transferred to them.
4. If any information supplied in any application for a subsidy is incorrect or fraudulent, the PHDB may take appropriate legal action against the beneficiary, and may also institute criminal proceedings.
5. If any application for a subsidy is approved, and if it subsequently transpires that the beneficiary in fact does not qualify for a subsidy, the approval of the subsidy will lapse immediately. The PHDB must advise lenders and conveyancers accordingly who must return the amount concerned to the Provincial Housing Development Fund to the extent to which it has not been paid to the developer or seller of the property. If a conveyancer is required to return the amount of any approved subsidy or the remainder of any approved subsidy, the PHDB may pay the conveyancer such a fee as the PHDB may regard reasonable for the work done by the conveyancer.

4.2.2 Allocation of Funds

1. Funds will be set aside in each Province for the allocation of individual subsidies on a quarterly basis. Quarters will commence on the 1st April, the 1st July, the 1st October and the 1st January in every year and these quarters are referred to as “allocation quarters”.
2. Individual subsidies will, during any particular allocation quarter, be granted in respect of beneficiaries on a “first come first served” basis.
3. The PHDB :

• must satisfy itself that the property acquired by the beneficiary complies with the eligibility criteria;
• may, in its discretion and with the approval of the MEC: Housing, deviate from the grant of subsidies on a “first come first served” basis if, in its opinion, it is possible to adopt a more equitable basis. If any PHDB prefers another method of allocating individual subsidies, it must issue a press release explaining the basis upon which individual subsidies will be allocated.

4. Once the funds set aside during any particular allocation quarter for the grant of individual subsidies have all been allocated in respect of particular beneficiaries, any further applications for individual subsidies received by the PHDB during that allocation quarter will be rejected. If any particular beneficiary whose application is rejected as a result of the lack of funds still wishes to apply for an individual subsidy, he or she will be required to apply in the next allocation quarter.
5. Attention is drawn to the difference between individual subsidies and project linked subsidies. If a project is approved in terms of Chapter 3 of this Part of the Code, the PHDB which approves the project will set aside sufficient funds for the allocation of project linked subsidies in respect of each and every property in that approved project. Any beneficiary who acquires a property in an approved project will accordingly be certain that sufficient funds will be available for the grant of a project linked subsidy in respect of him or her. A beneficiary who applies for an individual subsidy, can never be certain that funds will be available for the grant of a subsidy in respect of him or her.
6. Where the funds allocated for any particular quarter by any PHDB to credit linked individual subsidies have been exhausted, the PHDB must, in writing, advise the Banking Council and all lenders; or
7. Where the funds allocated for any particular quarter by any particular PHDB to the allocation of non-credit linked individual subsidies have been exhausted, the PHDB must make a press statement in which the public is advised of the fact that those funds have been exhausted.

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4.2.3 Credit and Non-Credit Linked Subsidies

There are two types of individual subsidies. These are:

• Credit Linked Subsidies: In cases where the applicant can afford loan finance, the applicant may apply for a subsidy that is linked to credit from a financial institution. Under this scheme there are two options available, namely, a deposit route or a savings route, where a deposit is required but the beneficiary does not have the necessary cash available
• Non-Credit Linked Subsidies: In cases where the applicant cannot afford loan finance, the applicant may apply for a subsidy to acquire the residential property entirely out of the subsidy and may supplement this with other funds that may be available to him or her.

Different rules apply to these two types of individual subsidies.

4.2.4 Required Agreements

Eligibility for the subsidy requires that the beneficiary enter into certain agreements. The rules in respect of the required agreements are as follows:

1. To apply for an individual subsidy, a beneficiary should purchase a residential property and for this purpose enter into an agreement for the acquisition of the property.
2. Such agreements must contain a reference to and a clear description of the purchase and/or product price of the property being purchased. In the case of a building contract, an indication of the stand price and the construction cost must be submitted.
3. Depending on whether or not the beneficiary is applying for a credit linked or non-credit linked subsidy, the following must be included in the agreement:

4. The agreements must be subject to a suspensive condition that the PHDB approves payment of a subsidy amount set out in the agreement.
5. The agreements must be subject to a further suspensive condition to the effect that the applicant is able to obtain loan finance in a stated amount, where applicable.
6. If, in the case of a non-credit-linked subsidy, legal fees are deducted from the subsidy amount, this must be clearly reflected in the agreements, as set out in 4.3.3 below.

4.2.5 Legal Fees

Only non-credit linked subsidies are eligible to include legal fees in the amount to be covered by the subsidy. In respect of legal fees, the following rules apply:

1. The costs, expenses and charges to be incurred in transferring a property to a beneficiary accessing a non-credit linked subsidy (the legal fees), may be deducted and paid out of the subsidy amount. In this case the agreement should reflect this and provide the exact details of how the legal fees are made up.
2. If the subsidy is a credit linked subsidy, the legal fees may not be paid out of the subsidy amount.

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4.2.6 Bank Guarantee System

4.2.6.1 In terms of the provisions of sections 4.3.3.1 (a) and 4.4.2 (h) of this Chapter of the Code, Provincial Housing Development Boards must, after the approval of any particular subsidy, deposit the approved subsidy money or the balance thereof into the conveyancer's trust account and/or, the central account maintained by the lender for this purpose, where the approval of the subsidy is not linked to the savings route option.

4.2.6.2 Where a PHDB is of the opinion that the introduction of a bank guarantee system, instead of the upfront payment system, will ensure better cash flow management of subsidy funds and the minimising of the risk of fraud and mal-administration of subsidy funds; it may decide to opt for the introduction of such a system.

4.2.6.3 If a PHDB decides to opt for the introduction of a bank guarantee system, the following guidelines should be adhered to:

1. Bank guarantees may be issued and funds be released against said guarantees when the following conditions / milestones have been met:

• fifty percent (50%) of the total approved subsidy amount (including an approved allowance pertaining to geotechnical conditions, if applicable) not exceeding the infrastructure costs to the stand, including the land and transfer costs, upon receipt of proof of registration of transfer;
• the remaining fifty percent (50%) of the total approved subsidy amount (including an approved allowance pertaining to geotechnical conditions, if applicable) upon receipt submitted by the applicable lender or conveyancer of a top structure completion certificate signed by the beneficiary, as well as an inspection certificate signed by both the municipality and the inspectorate of the applicable Provincial Department of Housing; and
• the total approved subsidy amount upon receipt, of verifiable proof of registration of transfer in respect of existing residential units.

2. The following functionality and procedures for the establishment of a bank guarantee basis of payment are suggested:

• the marketing, promotion, prioritising, budgeting, receiving, processing and approval of individual credit and non-credit linked subsidies as embodied in this Housing Code remain unchanged;
• automated electronic linkages / lines of communication be established between the various Provincial Governments and their respective Bankers;
• automated electronic linkages / lines of communication are established between the respective Bankers of the Provincial Governments and other lenders and conveyancers approved and registered by the PHDB's for the administration of approved subsidies.
• details in respect of approved subsidies on an agreed format are to be electronically down-loaded to the respective Bankers of the applicable provincial Governments;
• the total amount of the approved subsidies thus down-loaded be transferred from the respective Provincial Housing Individual Subsidy Budgets to an interest bearing Subsidy Approval Trust Account to be established by the respective Bankers of the Provincial Governments, and all funds standing to the credit of that account shall accrue interest at a rate from time to time, equal to the Treasury Bill Rate, as published every Friday, less 0,5% with effect from the date upon which the Banker received payment of any subsidy amount;
• the respective Bankers issue bank guarantees to the appropriate lenders and conveyancers in terms of applicable normal standard commercial practice and subsidies be transferred from Subsidy Approval Trust Accounts referred to above to the preloaded beneficiary accounts of the applicable lenders and conveyancers subject to the various milestones as set out in section 4.2.6.3 (a) above, being met;
• the respective Bankers maintain a list of lenders and conveyancers with their account payment details and domicilium as approved, registered and furnished by the PHDB's; and
• the Bankers, on a monthly basis, no later than 14 (fourteen) days after the end of each and every calendar month, deliver a reconciliation statement and pay-over interest due to the applicable PHDB on a basis similar to existing lender and conveyancer formats, and that the reconciliation statement must give details of the following transactions during the month in question:-

1. the amount of all payments received by the Bankers from the PHDB in respect of approved subsidies;
2. the amount of all payments made by the Banker to lenders and conveyancers including names, identity numbers and reference numbers of the applicants as well as the names of lenders and conveyancers on whose behalf those payments have been made;
3. the interest that has accrued on the funds invested by the Banker for the benefit of the Provincial Housing Development Fund, or where this fund has not yet been established for the benefit of the South African Housing Fund.
4. details of service fees, levied for the processing of applications by lenders; and
5. the fees payable by the PHDB for the rendering of a financial service by the applicable Banker of the Provincial Government in terms of their conditions of appointment.

3. Before the bank guarantee system could be implemented, the following conditions must be met:

• The bank guarantee system only be introduced once provincial accounting officers have reached agreement with their Bankers with a view to the establishment of a bank guarantee system and if successful;
• The respective PHDB, accredited lenders and the various conveyancers amend the contracts which currently exist between the PHDB's, lenders and conveyancers to accommodate the guarantee system as well as the fees to be levied by lenders and conveyancers for the rendering of such a service;
• The necessary approvals from the Provincial Treasury as well as the Provincial State Attorney be obtained.

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4.3 Non-Credit Linked Subsidies

4.3.1 How to Apply

Application forms for non-credit linked individual subsidies are available from the PHDB or accredited Municipalities. Applicants awarded this type of subsidy will fund the purchasing of the property out of the subsidy alone, possibly adding savings.

4.3.1.1 The Application Form

All applications for non-credit linked individual subsidies must be made on the appropriate application form. The application form must be accompanied by the documents indicated on the application form. The application form is included in Annexure A of this chapter 4 of part 3 of the Code.

Together with the required documents indicated in the application form, the following documentation is required:

1. Certified copy of the sale agreement and/or building contract in the case of the purchase of a vacant residential stand linked to a building contract as described in section 4.2.4 of this chapter of the Code, as well as approved building plans and the bill of materials.
2. Conveyancer appointment: The application must also contain a nomination by the developer or seller of the property, agreed to by the beneficiary, of a duly admitted attorney or conveyancer who will attend to the registration of transfer of the property, or leasehold or deed of grant into the name of the beneficiary. The conveyancer will also assist the relevant PHDB in administering of payment of the subsidy amount directly to the developer or seller of the property.
3. A certificate from the conveyancer. In this certificate, the conveyancer confirms that he or she is prepared to attend to the work envisaged in paragraph 4.3.1.1(b). In addition, if the developer or seller and the beneficiary have reached an agreement with the conveyancer regarding the fee, which must be an all inclusive and fixed fee, a recordal of such fee must be included.

4.3.1.2 The Conveyancer's Fee

The fee to which the conveyancer will be entitled for attending to transfer of the residential property acquired by the applicant and for assisting the PHDB in the administration of payment of the subsidy to the seller/developer of that property will be an all inclusive fixed fee and will be paid out of the approved subsidy.

If the beneficiary's application is approved, and the nominated conveyancer is not yet a party to an agreement with the PHDB, regulating the administration on non-credit linked individual subsidies, the PHDB will enter into such an agreement with the relevant conveyancer substantially on the terms and conditions in the draft agreement (Annexure B of this chapter 4 of Part 3 of the Code). For this purpose the PHDB will be entitled to negotiate with the conveyancer in order to agree a fee with him or her.

1. If the fee agreed between the seller/developer and the beneficiary on the one-hand, and the conveyancer on the other hand, is unacceptable to the PHDB, or the PHDB cannot reach agreement with the conveyancer on the fee, then the PHDB may require the developer or seller of the property and the beneficiary to appoint another conveyancer.

Further conditions regarding the conveyancer are set out in sections 4.3.3 and 4.4.

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4.3.2 How the PHDB Judges the Application for Non-Credit Linked Subsidies

The PHDB judges the application on the basis of the eligibility criteria set out in Chapter 2: General Rules, the criteria set out in 4.2 of this chapter, above, and any other requirements that may be identified by the particular province.

Upon receipt of an application, the PHDB must:

1. Acknowledge receipt of the application in writing within seven days.
2. As soon as possible thereafter, ascertain if sufficient funds are available to approve the application.
3. If sufficient funds are available, examine the application to establish whether it is procedurally correct. If it is not, the PHDB returns it to the applicant, indicating what is incorrect or incomplete. In such cases the applicant may amend the application as instructed and resubmit it for a second evaluation.
4. Ascertain whether the applicant’s name and/or identity number and/or those of his or her spouse appear on the National Housing Database, and if any of them do, immediately advise the beneficiary that the application is considered rejected.
5. Ascertain, through a search of all the deeds offices, whether any residential property is registered in the name of the beneficiary and/or his or her spouse. If any residential property is registered in the name of the beneficiary and/or his or her spouse, the PHDB must immediately advise the beneficiary accordingly, in which case the application will be considered rejected.
6. Once the PHDB has confirmed that

• the application is procedurally correct,
• the names and/or identity numbers of the beneficiary and/or his or her spouse do not appear on the National Housing Database, and
• no residential property is registered in the name of the beneficiary and/or his or her spouse,

The PHDB must consider the application and communicate its decision regarding it, within twenty one days after the PHBD's acknowledgment of the application.

If an application is rejected, the PHDB must give the beneficiary written notice thereof as well as written reasons for the rejection. If the application is approved, the PHDB must advise the conveyancer.

7. Where non-credit linked subsidies will be approved in instances where the subsidy amount exceeds the purchase price and the residual amount of the subsidy is to be used to build, complete or enhance the top structure, PHDB's will be required to, with effect from the date on which this Code comes into effect, consider such applications on the basis of a Provincial Housing programme that is consistent with National Housing Policy, approved by the MEC.

4.3.3 PHDB Administrative Rules for Individual Subsidies

4.3.3.1 The agreement regulating the relationships between the PHDB's and conveyancers

The agreement to be concluded between the PHDB and the conveyancer (for a typical example, see Annexure B of the chapter 4 of Part 3 of the Code), must set out:

1. Frequency and Timing of Payments: when, after the approval of any particular subsidy, the PHDB will deposit the subsidy amount or the balance thereof into the conveyancer's trust account. It is envisaged that the PHDB will at regular intervals deposit funds in respect of all subsidies approved during a particular period into the conveyancer's trust account;
2. Bank Account: the type of interest bearing bank account into which the PHDB requires the conveyancer to invest the amount of approved subsidies paid to him or her. Such a bank account may be a cheque account, a savings account, a call account, or any other suitable account that complies with section 78 (2A) of the Attorneys Act, 1979 (Act No. 53 of 1979), but shall exclude money market investments in unitised schemes registered in terms of the Unit Trust Control Act, 1981 (act No. 54 of 1981);
3. Reconciliations Required: the preparation and delivery of regular reconciliations by the conveyancer to the PHDB, in respect of all funds received and disbursed by the conveyancer. Such reconciliations must be delivered by the conveyancer to the PHDB at such intervals as the parties may agree upon, but at least monthly;
4. Conveyancing Fee: the amount of the fees to which the conveyancer will be entitled for attending to the transfer of any particular residential property and for assisting the PHDB in the administration of the payment of any particular subsidy, and the times at which the conveyancer will become entitled to those fees; and
5. Cancellation of Agreement: the cancellation of the agreement, if the conveyancer fails to comply with his or her obligations.

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4.3.3.2 Confirming the conveyancer’s bona fides

In terms of an agreement between the National Department of Housing and the South African Law Society , (then) Association of Law Societies (now Law Society of South Africa);

1. before any PHDB concludes an agreement with a conveyancer, it will enquire from the relevant Provincial Law Society;

• whether the name of the conveyancer appears on the roll of practicing attorneys,
• whether that conveyancer is in possession of a valid fidelity fund certificate, and
• whether any steps have been commenced by the relevant Provincial Law Society to suspend that conveyancer from practice or to remove his or her name from the roll of practicing attorneys and/or conveyancers;

2. Where the PHDB establishes that the name of the conveyancer, nominated by the developer / seller of the property and the beneficiary, is not on the roll of practising attorneys or conveyancers, or the conveyancer is not in possession of a valid fidelity fund certificate, or that provincial law society has commenced steps to suspend that conveyancer from practice, to remove his/her name from the roll of practising attorneys / conveyancers and has not entered into an agreement with the conveyancer as yet, the PHDB shall be entitled to require the seller / developer and beneficiary to nominate another conveyancer.
3. if the conveyancer's name appears on the roll of practicing attorneys / conveyancers, if he or she is in possession of a valid fidelity fund certificate, and if no steps have been taken to suspend him or her from practice or to remove his or her name from the roll of practicing conveyancers/attorneys, the Executive Officer of the Provincial Law Society will issue a certificate to this effect. If the above is not true, the Executive Officer of the Provincial Law Society will advise the PHDB;
4. once any PHDB has concluded an agreement with any conveyancer, it will give notice of the conclusion of the agreement to the Provincial Law Society and the monitoring unit of the Attorney's Fidelity Fund and will, in that notice, give details of the name and address of the conveyancer. In addition the PHDB will furnish the Monitoring Unit with a copy of the agreement together with particulars of all monies paid over to the conveyancer;
5. as and when the amounts of any approved subsidies are paid to any conveyancer, the PHDB making that payment will give notice of the payment to the monitoring unit of the Attorney's Fidelity Fund;
6. if any conveyancer defaults in his or her obligations towards any PHDB, the PHDB must give notice of the fact that the conveyancer has defaulted to the Provincial Law Society and the monitoring of the Attorney's Fidelity Fund;
7. if a PHDB has concluded an agreement with a conveyancer and if the Provincial Law Society takes steps to suspend that conveyancer from practice or to remove his or her name from the roll of practicing attorneys / conveyancers, the Provincial Law Society will advise the PHDB accordingly.

4.3.3.3 Cancellation of Agreement

The cancellation of an agreement between the PHDB and the Conveyancer may apply in four situations.

If:

• the name of any conveyancer nominated by any developer or seller of the property is not on the roll of practicing attorneys or conveyancers;
• that conveyancer is not in possession of a valid fidelity fund certificate;
• the Provincial Law Society has commenced steps to suspend that conveyancer from practice or to remove his or her name from the roll of practicing attorneys/conveyancers;
• the conveyancer fails to comply with his or her obligations in terms of the agreement with the PHDB;

the PHDB may, be entitled to terminate that agreement.

Where the PHDB has terminated the agreement:-

• the PHDB must advise the developer or seller of the property and the beneficiary;
• the developer or seller of the property and the beneficiary must immediately nominate another conveyancer.

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4.3.4 After Approval of the Non-Credit Linked Subsidy

After approval of the subsidy the PHDB must instruct the conveyancer in writing regarding

1. the times at which subsidies will be payable to the seller/developer of the residential property acquired by the applicant namely:-

• if that property has already been constructed, against registration of transfer of the property into the name of the applicant; or
• if construction of the property in question has not yet been completed, once transfer of the property has been registered into the name of the applicant and all building work required to construct the property has been completed in accordance with the agreement of sale concluded between the applicant and the seller/developer of the property;

2. the proof that the PHDB will require regarding the completion of the construction of the top structure where applicable. This would be a certificate from a suitably qualified professional to the effect that the construction of the top structure has been completed.

It is recommended that a PHDB also require

3. a certificate signed by the beneficiary in which he or she certifies that he or she has taken occupation of the property; and
4. a certificate signed by the beneficiary in which he or she certifies that the top structure has been completed to his or her satisfaction. This is often referred to as a “happy letter”.

4.3.4.1 Investment of Subsidy Funds and payments to the seller / developer by the Conveyancer

Once a subsidy has been approved, the PHDB must ensure that the subsidy amount is deposited into the conveyancer's trust account. The conveyancer must invest the money in an interest bearing trust account in terms of section 78(2A) of the Attorneys Act, 1979 (Act No.53 of 1979) for the benefit of the Provincial Housing Development Fund (PHDF). Where the said PHDF has not yet been established and operationalised, and the payment of housing subsidy funding to the Provincial Government is made in terms of the provisions of section 13 of the Housing Arrangements Act, 1993, the money be invested in the interest bearing trust account for the benefit of the South African Housing Fund.

After receipt of instructions and the subsidy amount from the accounting officer of the PHDF, the conveyancer -

1. must issue a guarantee or letter of undertaking to the developer or seller of the property, securing payment of the subsidy amount according to the instructions given by the PHDB;
2. must proceed to register transfer of the property to the beneficiary, and on transfer, in the case of an improved property, withdraw from the interest bearing account the amount to which the developer or seller of the residential property is entitled, making payment thereof in accordance with the said guarantee;
3. must, if the subsidy (less any legal fees to be met out of that subsidy) is not payable against registration of transfer of the property because the top structure has at that point not been completed, only make payment once satisfied, in the manner instructed by the PHDB, that the construction of the top structure has been completed.
4. Once he/she is satisfied that the work in question has been completed in accordance with the agreement of sale between the applicant and seller / developer, withdraw the amount of the subsidy (less the amount of any legal fees to be met out of the subsidy) from the abovementioned account, and make payment thereof in accordance with the guarantee issued by him or her, and may once having concluded his/her obligations, withdraw the amount of his or her agreed fee from the account; at such time as may be agreed upon between him/her and the PHDB in the agreement concluded between them (Annexure B of this chapter 4 of part 3 of the Code).
5. must account for the interest accrued on the deposit, with a cheque in favour of the Provincial Housing Development Fund, or the South African Housing Fund, as the case may be.

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4.4 Credit Linked Subsidies

4.4.1 How to Apply for Credit Linked Subsidies

Credit linked subsidies will be administered on behalf of the PHDB by banks, financial institutions and other approved providers of credit ("the lenders") who have concluded agreements with the PHDB and who will act as agents of the PHDB. A list of lenders who concluded agreements with the PHDB is available from the respective PHDB's. A typical agreement between the PHDB and a lender is annexed as Annexure C of this chapter 4 of Part 3 of the Code.

Before 1 April 1998, the previous National Housing Board had entered into various agreements with lenders who acted as agents of the National Housing Board in the administration of credit linked individual housing subsidies. In terms of section 14 (5) of the Housing Act, 1997, (Act No. 107 of 1997) the rights, liabilities and obligations of the former Board arising out of these agreements have passed to the various PHDB's. Any future agreements in this regard will be entered into between lenders and the relevant PHDB's.

4.4.1.1 Applying for credit

The following rules apply in respect of credit-linked subsidies:

1. A beneficiary who wishes to apply for a credit linked subsidy must submit his or her application to a lender.
2. When he or she applies to a lender for a credit linked subsidy, the beneficiary must already have concluded an agreement of sale in respect of a property. In addition, the beneficiary must, at his or her initial interview with the lender, hand a certified copy of that agreement to the lender. Any sale agreement concluded by a beneficiary must be subject to suspensive conditions to the effect that the beneficiary is able to obtain loan finance and a subsidy for payment to the developer or seller of the property.
3. At the initial interview, the lender must -

• require the beneficiary to complete an initial qualification form for loan finance, in which form the beneficiary must provide to the lender such information as the lender may need;
• advise the beneficiary whether he or she, in principle, qualifies for loan finance.

4. If the beneficiary, in principle, qualifies for loan finance, the lender must -

• advise him or her of the amount of the deposit that the lender requires. The lender may, in its discretion, determine the amount of this deposit;
• advise him or her of the approximate amount of any of the costs associated with the acquisition of a property (including transfer fees and bond registration fees) which the lender is not prepared to lend to him or her, and which he or she must accordingly pay.

5. If the beneficiary can pay the deposit and other costs, if any, and if he or she has a demonstrable savings record or credit record satisfactory to the lender, he or she must follow the deposit route in the further processing of the application for a credit linked subsidy. If the beneficiary cannot afford the deposit amount, or if his or her savings and/or credit record is unsatisfactory, he or she shall follow the savings route in the further processing of his or her application, or opt for a non-credit linked subsidy. In such cases, the application process as contemplated in section 4.4.4 of this Part of the Code, will apply.
6. Any lender may prefer not to require a beneficiary to pay a deposit prior to processing his or her application for a loan and his or her application for a subsidy. The lender may also waive the requirement that a mortgage bond be registered over the property as security for the loan granted to the beneficiary.

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4.4.1.2 Requirements for Credit linked subsidies: Deposit Route

Appointing and making payment to the conveyancer

1. The lender must instruct the beneficiary to make payment of the deposit and other costs, if any, to the conveyancer appointed in the sale agreement concluded by the beneficiary. If the beneficiary has not concluded a sale agreement or if the beneficiary has concluded such a sale agreement but no conveyancer is appointed in it, the lender must -

• appoint a conveyancer of its choice who will attend to the registration of a bond over the property; and
• advise the beneficiary of the identity of that conveyancer, and require the beneficiary to pay the deposit and any costs to that conveyancer.

2. In making payment to the conveyancer, the beneficiary may require the conveyancer to invest the payment in a separate interest bearing account, in which event interest on that amount will accrue for the benefit of the beneficiary.
3. Once the beneficiary has paid the deposit and any costs to the conveyancer and, if he or she has not already done so, conclude a sale agreement, the beneficiary must let the lender have -

• a receipt from the conveyancer as proof of the fact that the deposit and any costs have been paid;
• a certified copy of the written sale agreement concluded by the beneficiary, if a certified copy of this agreement was not handed to the lender at the initial interview.

4.4.1.3 Submitting the Credit Linked Subsidy Application to the PHDB

On receipt of the conveyancer's receipt and, if applicable, a certified copy of the sale agreement concluded by the beneficiary, the lender must approve the beneficiary's application for loan finance in principle, subject to the grant of a subsidy to the beneficiary. Approval is also subject to an assessment of the property by the lender, and subject to a condition to the effect that the beneficiary attends an instruction course, or instruction courses in the rights and obligations of a homeowner and a borrower as the lender may require.

Against approval of the beneficiary's application for loan finance, the lender must require the beneficiary to complete the subsidy application form attached to this chapter as Annexure A and must obtain from the beneficiary all the supporting documentation required in that application form.

After completion of the application form by the beneficiary, the lender must submit that application to the PHDB.

4.4.2 How the PHDB Judges the Credit Linked Subsidy Application

Upon receipt of an application from a lender, the PHDB must:

1. Acknowledge receipt of the application in writing within seven days.
2. As soon as possible thereafter, the PHDB must examine the application to establish whether it is procedurally correct. If it is not, the PHDB returns it to the lender, indicating what is incorrect or incomplete. In such cases the lender may assist the applicant in amending the application as instructed and resubmitting it for a second evaluation.
3. Ascertain whether the applicant’s name and/or identity number and/or those of his or her spouse appear on the National Housing Database, and if any of them do, immediately advise the lender that the application is considered rejected.
4. Ascertain, through a search of all the deeds offices, whether any property is registered in the name of the beneficiary and/or his or her spouse. If any property is registered in the name of the beneficiary and/or his or her spouse, the PHDB must immediately advise the lender accordingly, in which case the application will be considered rejected.
5. Once the PHDB has confirmed that

• the application is procedurally correct,
• the names and/or identity numbers of the beneficiary and/or his or her spouse do not appear on the National Housing Database, and
• no residential property is registered in the name of the beneficiary and/or his or her spouse,

6. The PHDB must consider the application and communicate its decision regarding it, within twenty one days after acknowledgment of the application.
7. If an application is rejected, the PHDB must give the lender written notice thereof as well as written reasons for the rejection. The lender will, in turn, advise the beneficiary of the decision.
8. If the application is approved, the PHDB must advise the lender accordingly, and shall arrange for the subsidy amount to be paid to the lender. Any notification of approval of the subsidy given by the PHDB to the lender must be regarded as an irrevocable undertaking to pay the amount of that subsidy to the lender.

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4.4.3 After Approval of the Credit Linked Subsidy Application

After approval of any subsidy, the lender must:

1. issue a guarantee securing payment of the subsidy amount;
2. deliver that guarantee to the conveyancer appointed to transfer the property to the beneficiary, and require the conveyancer to proceed with the transfer of the property;
3. if it has not already done so, immediately give instructions to any qualified conveyancer of the lender's choice, to register a mortgage bond over the property purchased by the beneficiary, as security for the loan granted by the lender to the beneficiary. If the lender so prefers, the guarantee contemplated in (a), above, may be issued on its behalf by the conveyancer.

4.4.3.1 Registration of transfer

On receipt of the guarantee for the subsidy amount from the lender, the conveyancer appointed to transfer the property must:

1. if the beneficiary has paid the costs of registering a bond to that conveyancer, pay those costs to the lender's conveyancer;
2. if the beneficiary has paid the deposit and any additional costs to the lender's conveyancer, obtain payment of the deposit and the costs of registering transfer, if those costs have been paid by the beneficiary, from the lender's conveyancer;
3. proceed to register transfer and ensure that transfer is registered simultaneously with the registration of a bond in favour of the lender;
4. on registration of transfer advise the lender.

Against advice from the conveyancer that transfer has been registered, the lender must pay the subsidy amount in accordance with the guarantee issued by it.

4.4.3.2 Payment administration as outlined in the agreement

Any agreement concluded between a lender and the PHDB regulates:

1. the times at which payment of the amounts of any approved subsidies will be made to the lender. Payment will be made at such regular intervals as the lender and the PHDB may agree;
2. the manner in which the lender will be required to deal with the amounts of approved subsidies paid to it. The lender will usually be required to retain these amounts in one or more interest bearing accounts;
3. the interest that will accrue on the amount of any approved subsidies, from the date upon which the lender receives payment of that amount up to and including the date upon which the lender pays that amount to the developer or seller of the property;
4. the manner in which the lender will be required to furnish reconciliations and accounts to the PHDB, and the times at which such accounts and reconciliations are to be delivered;
5. the fees to be paid by the PHDB to the lender in respect of the work to be done by the lender in assisting the PHDB as its agent in the administration of credit linked subsidy applications, and the manner in which payment of those fees will be made.

4.4.3.3 Paying the developer or seller

The lender must make payment of the subsidy to the developer or seller of the property if:

1. the top structure has already been constructed, against registration of transfer of the property into the name of the beneficiary; or
2. if the top structure has not yet been constructed, against registration of transfer of the property into the name of the beneficiary, and/or against the progress of building work. In this case, the amount of the subsidy must be used to pay the developer or seller of the property for the land upon which the top structure is built and for such work, if any, as the developer may have done in erecting improvements thereon. The amount of the loan granted by the lender to the beneficiary must only be used once the full subsidy amount has been used.

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4.4.3.4 Properties purchased in projects approved in terms of the Project Linked Subsidy Mechanism

If any beneficiary’s application for a subsidy has been approved and if that beneficiary subsequently purchases a property which is located in a project approved in terms of Chapter 3 of this Section of the Code:

1. the lender must, if it is satisfied with the property purchased by the beneficiary, advise the developer that a subsidy has already been obtained for the beneficiary and that it has agreed to grant loan finance to the beneficiary;
2. thereafter the developer must ensure that the beneficiary completes that portion of the prescribed application form that relates to the property purchased by him or her and the developer must submit that subsidy application to the PHDB; and
3. payment of the balance of the subsidy will then be made in accordance with the provisions of Chapter 3 of this Part of the Code (see Section 3.5.4 of Chapter 3: “Progress Payments”).

4.4.4 Additional Requirements in terms of the Savings Route for Credit Linked Subsidies

If at the initial meeting between the beneficiary and the lender envisaged in 4.4.1, it is decided that the beneficiary will follow the savings route, the lender must:

1. require the beneficiary to complete the application form set out in Annexure A of this chapter 4 of Part 3 of the Code (with the exception of that portion of the application form which relates to the property acquired by the beneficiary) and obtain from him or her all the supporting documentation required in the relevant portion of the application form;
2. submit that application form to the PHDB.

On receipt of any such an application for a subsidy from the lender, the rules applying to the PHDB, as set out in 4.4.2 above, apply.

4.4.4.1 If the subsidy application is approved by the PHDB

If the application is approved by the PHDB:

1. the PHDB must formally advise the lender;
2. the lender must devise a savings plan for the beneficiary, advise the beneficiary of the content of that plan, open a savings account for the beneficiary, and require the beneficiary to commence saving. Any savings plan will be structured on the basis that it will afford the beneficiary an opportunity to save the amount of the deposit and any costs over a period of time;
3. the PHDB shall ensure that funds are reserved for the payment of a subsidy to the beneficiary, so that, on conclusion of the beneficiary's savings plan, funds will be available to make payment of his or her subsidy.

4.4.4.2 Review of the loan application by the lender

If any beneficiary complies with his or her savings plan to the satisfaction of the lender, the lender, may on completion of that plan conduct a further assessment of the beneficiary's credit worthiness.

• If the lender is satisfied with the beneficiary's credit worthiness, the lender must approve the grant of the loan for which the beneficiary has applied in principle, subject to the conclusion of a sale agreement for the purchase of a residential property by the beneficiary. Approval is also subject to an assessment, by the lender, of that property, and a condition to the effect that the beneficiary attends an instruction course or instruction courses in the rights and obligations of a home owner and a borrower as the lender may require.

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4.4.4.3 After the Sale Agreement has been concluded

Once the beneficiary has concluded an agreement of sale to acquire a property:

1. the beneficiary must deliver a certified copy of that agreement to the lender;
2. the lender must assess the property and, if it is satisfied with its assessment, it must require the beneficiary to complete that portion of the prescribed application form for a subsidy, which deals with the property acquired by the beneficiary. The lender must then submit that portion of the application form to the PHDB, within 18 months after the date upon which the beneficiary's application for a subsidy was originally approved by the PHDB. If the relevant portion of the application is not submitted to the PHDB within the required 18-month period, the approval of the beneficiary subsidy shall lapse. Where that beneficiary still wishes to obtain a subsidy he/she shall be required to make a fresh application for a subsidy.

4.4.4.4 Payment of the subsidy amount

If that portion of the prescribed application form, which deals with the property acquired by the beneficiary is delivered to the PHDB within eighteen months of the date upon which that beneficiary's application for a subsidy was originally approved:

1. the PHDB must satisfy itself that the residential property acquired by the beneficiary complies with the criteria in respect of residential properties contained in Chapter 2 of this Part of the Code. If the property does not comply with those criteria, the PHDB must advise the lender, in which case the beneficiary may acquire another residential property and re-submit the relevant portion of his or her application form to the PHDB;
2. if the property acquired by the beneficiary complies with the eligibility criteria, the PHDB must arrange for the subsidy amount to be paid to the lender
3. the lender must issue a guarantee securing payment of the subsidy amount in accordance with the instructions given to it by the PHDB;
4. the lender must appoint a conveyancer of its choice to register a bond over the property;
5. the lender must require the conveyancer appointed in the sale agreement concluded by the beneficiary to proceed with transfer, and its own conveyancer to proceed with registration of the bond. The lender must make arrangements to pay those conveyancers, either out of funds saved by the beneficiary, the beneficiary's subsidy or the balance of the beneficiary's subsidy or out of the proceeds of the loan granted by it to the beneficiary;
6. against advice from the appointed conveyancers that transfer of the property and a bond over it have been registered, the lender must pay the subsidy amount, in accordance with the guarantee issued by it;
7. the provisions of 4.4.3.2 of this chapter, will apply to the agreement to be concluded between the lender and the PHDB.

4.4.4.5 Non-credit worthy beneficiaries

If the lender is not satisfied with the beneficiary's credit worthiness, the lender must reject the beneficiary's application for loan finance. Despite such rejection the beneficiary shall remain entitled to receive a subsidy, and the subsidy approved in respect of the beneficiary shall be deemed to have been approved as a non-credit linked subsidy, provided that:

1. the part of the prescribed application form which deals with the property acquired by the applicant, is delivered to the PHDB within 18 (eighteen) months after the date upon which the applicant's application for a subsidy was originally approved by the PHDB. Where the relevant part of the prescribed application form is not delivered to the PHDB within the said 18-month period, that approval of the applicant's subsidy shall lapse. If the applicant still wishes to obtain a subsidy, he or she shall then be required to make a fresh application;
2. The beneficiary must acquire a residential property in terms of a written agreement of sale in which a conveyancer is appointed to deal with the transfer of that property to the applicant;
3. The beneficiary must complete that portion of the prescribed application form that deals with the property acquired by the applicant, and submit it to the PHDB; and
4. If the property does not comply with the criteria set out in Chapter 2 of this part of the Code, the PHDB shall advise the applicant, in which case the applicant may, acquire an alternative property and re-submit the relevant portion of his application form to the PHDB.
5. If the property acquired by the beneficiary complies with the eligibility criteria, the PHDB must advise the conveyancer and thereafter the procedure set out for non-credit linked subsidies (see 4.3 of this Chapter) will apply, with the necessary changes. The PHDB must also advise the lender through whom the beneficiary originally applied for a subsidy, of the fact that the beneficiary has used his or her subsidy as a non-credit linked subsidy.

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4.4.4.6 Defaulters of the savings plan

If any beneficiary follows the savings route in applying for a credit linked subsidy and if, during the period of his or her savings plan, that beneficiary defaults in his or her savings plan :

1. the beneficiary nevertheless remains entitled to receive a subsidy;
2. the subsidy approved in respect of that beneficiary shall be deemed to have been approved as a non-credit linked subsidy;
3. the beneficiary may use the subsidy amount no sooner than nine months and no later than twelve months after the date upon which that subsidy was originally approved.

Any beneficiary who has defaulted in his or her savings plan and nevertheless wishes to use his or her approved subsidy as a non-credit linked subsidy must :

4. acquire a property in terms of a written sale agreement in which a conveyancer is appointed to deal with the transfer of that property to the beneficiary;
5. complete that portion of the prescribed application form that deals with the property acquired by the beneficiary, and submit it to the PHDB.

On receipt of any such an application form, the PHDB must

6. satisfy itself that the property acquired by the beneficiary complies with the criteria set out in Chapter 2 of this part of the Code. If the property does not comply with those criteria, the PHDB must advise the beneficiary, in which case the beneficiary may, subject to 4.4.4.6 (c), acquire an another property and re-submit the relevant portion of his or her application form to the PHDB.

If the property acquired by the beneficiary complies with the eligibility criteria the PHDB must

7. advise the conveyancer and thereafter the procedure set out for non-credit linked subsidies (see 4.3 of this chapter) will apply, with the necessary changes. The PHDB must also advise the lender through whom the beneficiary originally applied for a subsidy, of the fact that the beneficiary has used his or her subsidy as a non-credit linked subsidy.

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4.6 Key Points to Remember

 

Rule	Non-Credit Linked Subsidy	Credit Linked Subsidy
Application	To the PHDB	To a lender
Legal fees	Covered by the subsidy	Not covered by the subsidy
Notification of decision on subsidy application	To the beneficiary, within 28 days of receipt of the application	To the lender, within 28 days of receipt of the application
Payout of Subsidy from PHDB	To conveyancer	To the lender

Table 11: Key Differences Between the Non-Credit Linked and Credit Linked Subsidy Mechanisms

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