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Property prices in South Africa recorded a positive year-on-year growth of 6.2 percent in December 2011, according to mortgage originator stats. The mortgage originators says although this increase is a positive development for the local residential property market, it predicts that the market will continue to trade sideways in 2012. The December  price index’s revealed that the average house price rose to R870 564 from R819 977 a year earlier.

A month-on-month increase of 3.6 percent was also recorded in December.

The growth in the average purchase price among first time buyers showed a significant increase, with year-on-year (y/y) growth of 14.5 percent to R656 230 in December 2011 from R573 112 a year earlier.Saul Geffen, anticipates that residential property prices will continue to drift sideways throughout 2012 and doesn’t expect the average annual property price growth to exceed inflation by much this year. According to other indicators tracked by Bond Originators, the average approved bond size increased 3.6 percent y/y in December to R722 529 from R697 572 in 2010. The average deposit as a percentage of purchase price increased by 14.1 percent y/y to R148 035, which is an equivalent to the average deposit of 17.0 percent of the purchase price.

Data indicated that the initial bank decline ratio has increased by 6.2 percent y/y to 51.7 percent and the effective approval ratio decreased y/y by 8 percent.

Geffen says the effective approval ratio has been influenced by the changed mix of applications received in December, which typically have lower approval rates.

December applications usually result in a larger rollover of conversions to the following month, given the holidays towards the end of the month, he says.

“With the interest rate anticipated to remain low in 2012 and with property prices remaining depressed the current market represents a favourable environment for buyers.”

Herschel Jawitz chief executive officer of Jawitz Properties believes that even without an interest rate cut by the Reserve Bank on Thursday this is a still a good time to buy a property in South Africa.

“A rate cut would certainly give consumers and buyers a short term impetus to get into the market, but what is not needed is a short term cut in rates followed by an increase in rates later in the year.”

Jawitz says stability and consumer confidence play a critical part in the residential market because without these factors, long term buying decisions cease to exist.

He points out that with property values in real terms as they were in 2007 and rates still at historic lows, the market is offering value but not bargains.

“Provided a long term view is taken, now is a good time to buy.”

The year 2012 is set to excite buyers even more thanks to Absa, one of the big four banks that has decided to grant 100 percent home loans from mortgage originators.

Lew Geffen, chairman of Sotheby’s International Realty in South Africa says after a three year lull, the battle of the banks for home loan market share is about to heat up again benefiting homebuyers and the property market in general.

“This month’s decision by major lender Absa to once again start accepting applications for 100 percent loans from mortgage originators we believe is just the first salvo in the renewed battle,” he says.

Geffen says this move will prompt counter-measures from other banks anxious to retain and gain top quality clients.

He says most lenders are already offering bonds of up to 100 percent to their existing clients in good standing and bonds of 90 percent on average to new clients.

“I am not suggesting that banks will immediately relax their lending criteria. “

“Bond applicants will still need to have excellent credit records, low debt levels and good employment prospects in order to be approved.”

He says just now perhaps they won’t need to have such a large sum of cash on hand to pay a deposit and cover transfer costs.

If inflation tails down later this year as expected, the banks will probably also become more negotiable once again on interest rates.

He explains that bond applicants can expect higher levels of service and faster response times, as banks increasingly relearn that home loan borrowers are very often the most loyal consumers.

Geffen says the results of this shift in attitude will be an increase in the number of loans granted and a decrease in the number of repeat sales for estate agents.

Savvy investors have been watching the market carefully noting that the Cape West Coast is the place to buy into.

According to Justus Brandt, broker/owner of RE/MAX Sunset Coast, whose office services the area from Paternoster to Elands Bay along the Cape West Coast, this property location is one of the hottest and most-sought after nodes among investors.

The areas along the Cape West Coast consist mostly of holiday homes and retirement properties with the majority of property investors coming from other regions.

“Buyers include local retirees and business people to holiday makers and overseas investors.”

Demand for property has been good in 2011 with the expected increase in sales compared to 2010 during the holiday period, especially in Shelley Point Golf Estate, On Golden Mile and Britannia Bay, he says.Brandt says popular properties among investors are houses that are priced up to R1.5 million featuring three bedrooms, two bathrooms with double garage in one of the above mentioned areas.

Most buyers look for properties with a sea view or a location close enough to the beach so that they can take long walks.

Brandt notes that property options along the Cape West Coast cater for a wide range of buyers looking to purchase either vacant stands or homes.

Property prices in the region range from around R160 000 for vacant land to R2.8 million for a beachfront stand in a golf estate.

Vacant small holdings are available from R595 000, while recent house sales reflect selling prices from R575 000 for an entry-level, two-bedroom dwelling to between R950 000 and R1.95 million for a mid-level, three-bedroom, double-story house.Smallholdings typically sell between R1.8 million and R2.2 million while top-level homes start at approximately R2.5 million up to R10 million.

With banks set to loosen their purse strings and grant as much as 100 percent home loans, it might be a good time to buy in Cape Town’s sought-after suburb, the Atlantic Seaboard.

Pam Golding Properties (PGP) reports that despite fluctuating property market conditions, this location continues to retain sound value investment.

PGP points to the appreciation in value of apartments in one iconic building as a prime example. The President occupies a front row position in Bantry Bay, ocean views from every unit with one penthouse apartment selling for R28 million.Atlantic Seaboard and City Bowl, Basil Moraitis, PGP area manager says The President was built in the early 1990s by Sanlam and at the time, its 58 apartments commanded prices in the range of R5 000 to R10 000 per square metre.

That pricing held steady for about five years, then increased to around R12 000 to R15 000 per square metre in 1998, in 2003, the price was R20 000 per square metre.

In 2006, the cost leaped to R40 000 per square metre and it continued escalating to over R55 000 per square metre by 2008 and R60 000 per square metre by 2010, he says. Last year, new sales in the building were concluded in the R50 000 to R60 000 per square metre price range.

The President is one of the best-maintained buildings on the Atlantic Seaboard and coupled with steadily increasing values, this makes it a must-buy property into location, he says. “With 24-hour manned security, the building is the ideal home for those seeking a secure and convenient lock-up apartment, either for holiday or permanent use.” – Denise Mhlanga

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Even with the worst of the recession behind us, combined with the fact that the banks are starting to marginally relax their lending criteria, getting a bond application approved remains a challenge for many..

The lending landscape has seen dramatic changes over the last few years – practices that were once acceptable have changed in lieu of stricter regulations and controls.  “Stricter lending criteria due to the National Credit Act (NCA) has been, to a large extent, blamed for the decline of the property market in recent years,” says Goslett. However, the truth is that the decline is not solely due to the NCA, but rather as a result of an amalgamation of various factors, including the world-wide recession, the fluctuating interest rates, inflation and so on.”

He says that although it remains much more difficult to get an approved home loan today, it is important to recognise that, to a large extent, it was the NCA that saved South Africa from going the same route as America and the UK when their property markets bottomed-out. “Today, loan underwriting standards remain pretty stringent as the banks are taking every precaution necessary to ensure that they don’t fall victim to another financial crisis.”

Against this background, Goslett discusses the top five points to consider when applying for a home loan to ensure a better chance of approval:

1.)   100 percent home loans

Just over a year ago, 100 percent bonds were all but extinct. They have re-emerged today. There is considerably more risk involved in granting a 100 percent home loan, the lending criteria will be stricter and the overall approval rate on these applications is therefore much lower.

2.)   Affordability

A simple calculation involving an applicant’s gross income, net income and fixed monthly expenses will provide insight into their monthly expendable income. South African credit legislation governing mortgage lending dictates that mortgage lenders may not grant a bond of which the monthly repayments are larger than one-third of your monthly net income.

Most banks work out the amount that an applicant will qualify for using the repayment to income (RTI) of 30 percent in conjunction with the available disposable income. This means that the person with very little outstanding debt will qualify for a considerably higher loan amount as they will have more disposable income. However, those individuals who are already highly geared often won’t be approved for a home loan as their debt-to-income ratio exceeds the NCA’s guidelines.

3.)   Stable income

Often applicants don’t have consistent proof of income for the last three years. Regardless of how good their credit rating and current rate of disposable income is; if they can’t show the bank continued proof of income, loan approval will be tough.

4.)   Credit rating

A less than perfect credit record will negatively influence a bond application and, in extreme cases, bad credit may even lead to bond approval being refused.

Any lender will undertake credit checks on all home loan applicants which will provide them with information on how much credit they have applied for, the state of their credit accounts, how they have been managed and their blacklist-status.

Credit scores aim to predict how likely the applicant will be to honour their credit commitments in the future. To a large extent, loan approvals are based on the applicant’s credit scores, as it is used by lenders to identify the risk in offering them credit.

5.)   Self-employment

More and more South Africans are opting to become entrepreneurs – some because they were made redundant by the recession, others because they believe it offers a better lifestyle and some because they believe they can earn considerably more this way. However, in compliance with the NCA, lenders have to be especially careful about lending money to people who are employed in positions that might be considered “insecure”. As such, self-employed individuals usually struggle to qualify for a bond.

In April 2008 only 24 percent of home loan applications were converted into granted bonds – a radical decline compared to the boom years of 2005 and 2006 where 78 percent of all home loan applications were granted. Since October last year there has been a gradual improvement in the success rate of bond approvals and currently around 50 percent of all home loan applications are successful.

This is mainly due to the banks relaxing their lending criteria to a certain degree as well as the fact that property prices have now adjusted downwards to a “new normal”.

But while the banks have eased up on their lending criteria, it is still important for them to ensure that the loan applicant can afford to meet the monthly repayments.  Therefore, as a property buyer, it is important that you watch your credit rating carefully, save up for a deposit if possible and make sure you have all the necessary documentation at hand when applying for your loan.

Remember by choosing us for a loan, you will get professional advice to make sure you are getting the best deal possible.

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