I am thoroughly sick and tired of estate agents trying to “talk up” up the property market with predictions about what house prices will do this year, how they will rise and how sales activity will increase when, in truth, these estate agents could be doing so much more than just talking.

Paddy Hartdegen writes a regular column for Property24.com

I have a simplistic and, I believe, realistic view of most things that unfold in this strange, complex and multi-facetted society of ours and because of this I try to look beyond much of the hype and hysteria that occurs and get down to the actual nub of a particular issue.

And, for me anyway, the reality of the property market today is simple: banks aren’t lending money and they are making it really hard for prospective homebuyers to get a bond so they can buy a home.

If banks lend money freely, then the property market will boom. If banks make it damned nigh impossible to borrow money then the property market will remain in a slump. Where is the property market right now? Smack bang in the middle of a slump.

What the estate agents should be doing is not fiddling about telling us how activity is increasing because more wannabee homeowners pitch up at show days. They should be out there, lobbying the banks to loosen their podgy little hands that are hanging, so tightly onto the purse strings. So tightly that you cannot prise a penny from their fat, sticky, sweaty little fingers.

The estate agents should be united in approaching government and lobbying for a release of the stranglehold that banks have on advancing money. The estate agents should be working with the National Credit Regulator to ensure that if specific criteria for credit are met then funds cannot be unreasonably withheld.

What estate agents should be doing is finding alternative sources of bond finance too.

The estate agents themselves represent a powerful body of people who, if they were prepared to apply their minds to coming up with meaningful and sustainable solutions could probably find a way to resolve the funding problems that face every potential homeowner in this country.

I’m not talking about a particular segment either because it is just as difficult for a first-time home buyer to get a bond as it is for a man or woman who has been building wealth for many years and is in a stable job with an impeccable payment record.

In fact one of the inane comments that I came across (inane from the bank, not the victim) was made by a man in his 40s who has a house that is fully paid for, earns R40k a month, has no instalment sales, has paid cash for both his cars and cannot get a bond because he has “no credit history”.

He pays his debts, he buys those things that he can afford to pay for and the banks don’t want to give him access to finance because he cannot provide three trade references (say from Edgars, Truworths or Savelkouls).

How inane is that?

So let me put some questions out there and see what sort of response I get:

- Do you think that estate agents in South Africa should be lobbying banks, government authorities, the Financial Services Board and any other similar organisations to get the banks to relax their lending criteria and grant bonds to credit-worthy individuals with a proven track record?

- Statistics show that at least 52% of applications for a bond are rejected at the first application. Do you think that banks are applying fair rules for adjudicating credit applications?

- Does anyone believe that a bank is a partner in a financial transaction or are they viewed, instead, as a Shylock demanding guarantees for every last drop of financial blood they can get?

- Should estate agents be devising alternative ways of providing funding for bonds or guarantees for the purchase of a property? Given that property sales are worth billions of Rands each year, the estate agents are in a position to devise and source alternative funding for home owners. Should they be doing so?

- Banks pay commission to bond originators and are greedily now insisting that they won’t provide bonds of more than 50% of the loan to clients who use mortgage originators. The reason is that banks don’t want to pay the commissions. Do you think this is fair?

- Does anyone in South Africa think that the bank treats them fairly and is not trying to profiteer from bank charges, excessive interest, penalties and other forms of self-enrichment?

I’m pretty sure that I will incur the wrath of many people in the banking community and I will probably have a number of estate agents whining at me because they will say that it’s “not their responsibility to arrange finance for clients”.

But my simple mind tells me that the actual problem with South Africa’s property market is that while the banks are awash with money, they are not prepared to lend it.

And that’s why the property market is depressed.

And if that trend changes and money is available then the property market will quickly return to the boom periods that prevailed in the mid-2000s. And given the extensive housing needs of South Africa, we need to see boom, rather than bust, conditions prevailing.

Interestingly, many of the property developers have come up with alternative funding mechanisms already (because they really must sell their properties) and they are offering financial incentives, delayed transfers and rental-with-an-option-to-buy deals just to ensure that somebody else takes on the responsibility of maintaining and occupying the home.

And it’s in that arena that I think estate agents could really be earning their cash. For the estate agents in South Africa have the clout to be able to change the intransigent attitudes of our banking fraternity.

I’m not really interested in what statistics estate agents might provide us with in terms of “more interest in show houses” or “prices have risen by X percent” or “we have seen robust conditions in the affordable housing market” or any other nonsense. All of these comments are rubbish until there is money available to finance the transaction.

And at the moment it’s so difficult to get a bond that you may as well hibernate for another year or two –at least that’s what the banks are telling us.

How many thousands of you would like to tell your bank to take their money and shove it?

You needn’t answer that!

*Hartdegen writes a regular column for www.property24.com. The content of his columns constitutes his personal opinion and doesn’t pretend to be facts or advice. Contact him at paddy@neomail.co.za.

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The majority of first-time home buyers consist of mostly younger individuals who have limited experience of owning or maintaining a property of their own. As a result, many of these individuals are not in a position to make a well informed decision about the long-term implications involved in purchasing a home.

Seeing that investing in property has far reaching consequences, Adrian Goslett, CEO of RE/MAX of Southern Africa, offers a few tips for first time home buyers, designed to assist them in making the most well informed decision possible.

“If you are in the market to buy a home, it is important to move quickly, but do not be pushed or rushed into making a decision. Property prices are starting to increase again, with a 5% increase in property prices expected in 2010, so the sooner you can get your foot in the door of property ownership, the better. However, buying a home is a big commitment that shouldn’t be entered into lightly. Affordability is a key factor to take into consideration,” says Goslett, who notes that first time homeowners need to take potential interest rate increases into account. “In addition,” he says, “other factors such as NERSA having granted Eskom the freedom to introduce rate increases of up to 25% on electricity, needs to be taken into account when calculating the affordability of purchasing a home.”

When purchasing a home, remember that the selling price of the home is not the only cost involved in the transaction, says Goslett: “There are several added costs involved in buying a property, which can add up to a sizeable amount, including transfer fees, deeds office fees and levies, municipal rates, bank charges, bond initiation fees, home insurance costs, as well as the monthly administration fee that is charged by the bank. It is critical to include all of these into your calculations to work out how much you can actually afford.”

If you want to own your own property, start off by determining the size of home loan you qualify for. With regards to home loans, your monthly income and expenditure is the single most important factor with regards how much you can borrow to purchase a property. Goslett explains: “Loan providers work out the amount you qualify for by considering your gross monthly income minus your gross monthly expenses. As a rule of thumb, your monthly bond repayment cannot be more than 30% of your total monthly income.”

He says that there are a number of online mortgage calculators that will give you an estimate of what you qualify for, but says that it is important to note that there are no guarantees with regards to these results: “Calculators will only give you an estimate, as being approved for a mortgage involves more than just checking your income versus your expenses. Your credit history also plays a big part in whether you will be approved for a mortgage at all. As such, make sure your credit history is clean and that you have no late or outstanding bills that could negatively affect the bank’s decision.”

Goslett also notes that banks seldom grant 100% home loans, and says that first time homebuyers therefore need to have a deposit saved up. “It is important that the money for your deposit is easily accessible and readily available. If your offer to purchase is accepted, your deposit needs to be paid over into a trust account fairly quickly. If you do not have the funds available, you are at risk of the sale agreement falling through. “

Goslett says that it is best to get your affordability assessed: “Speak to a credible mortgage originator to establish the home loan amount you would potentially qualify for first. They will be able to list and explain all the costs involved in buying a property, and will be able to assist you in calculating just how much you can afford. In this way, you will know what price bracket to look at before you start searching for your first home, which can save you a lot of time and hassle.”

Bond terms can vary between 20 and 30 years, as can the interest rate granted by the bank. “Currently, the prime interest rate is 10,5%, but depending on your credit history, income and history with the bank, you can be approved for a loan that is charged below the prime lending rate. It is important for first time home buyers to understand that interest rates are not cast in stone, but are negotiable and that they can speak to mortgage lenders about securing a better rate,” says Goslett. “The banks also offer a variety of different products to suit individual requirements. Therefore first time buyers should be sure to investigate all the options to find the solution that is tailored to suit their specific needs,” Goslett concludes.
Article by Adrian Goslett – RE/MAX

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