As part of its business model, diversified private equity and financial advisory firm Musa Group is partnering with Gauteng Partnership Fund to provide the much needed housing in the province.
In fact Musa Group was the first intermediary to receive funding for the provision of Pension Backed Home Loans (PBHL). The fund amounting to fifteen million Rands will be used to transform the lives of low to medium income earners.
This model will, in addition, positively impact on various retailers, currently operating in partnership with the Group; providing beneficial housing solutions for employees within these businesses.
In a report published by the Centre of Affordable Housing in Africa, 3.8 million South African households or 28.8% of all occupied units earned a household income between $276.5- $790 per month.
Pension Backed Housing Loans (PBHL) is an alternative form of housing finance where the loan is secured by the member’s retirement fund savings instead of a mortgage bond.
The Pension Funds Act then allows employees to use their retirement fund credits as security for mortgages on existing or new property, with the option to ‘self-build’ or improved existing dwellings.
PBHL is an attractive solution to address the housing shortfall as there are trillions of rands in pension funds which could be exploited as collateral, with only a fraction of PBHL floating in the bond market.
In many cases however, employees apply and are approved for loans to be used for ‘self-built’ and renovations, often referred to as incremental housing.
Sometimes money is misused or not used at all for its intended purposes which could lead to financial distress for the consumer.
The days of bankroll big-ticket items under the guise of PBHL will be short-lived as more responsible financial institutions back the product and insure proper protocols to insure the proper use of funds.
An advantage of PBL is that if an employee has been working for a fifteen year span, he would have built up between $15800 and $23 789 due to a “compulsory savings” model of pension fund participation.
However, the collateral should under no circumstance should these savings be touched other than for use as leverage for a bond on a fixed asset.
Musa, in their continued effort to expand on their home loans division, will utilize the funded amount of $1.185m towards transforming the lives of low to medium income earners.
Supporting the expansion of the use of PBHL as a funding tool will, thus, enable home ownership to become attainable to previously excluded individuals.
Institutions such as GPF and Human Settlements, in providing funding to intermediaries like Musa Group, are vital to further establishing PBHL and providing an environment conducive to sustainability and long-term growth for the South African housing landscape.