Residential sales improving – but bond negotiations not

Another high profile figure in the property industry, Michael Bauer, managing director of IHPC (Pty) Ltd, has said that he finds the methods by which banks issue – or do not issue – mortgage bonds to be difficult to understand and lacking in consistency.

IHPC markets and sells homes at Bardale Village near Kuils River. Bauer says that his sales team there has learned what criteria the different banks apply in assessing a client and they ‘go the extra mile’ to ensure that all their applications are fully compliant. As a result, said Bauer, a high percentage of Bardale Village’s applications are successful.

The Bardale Village sales team’s checks, said Bauer, include affordability checks, payment profiles, credit scoring, and full credit checks. These are very similar to those used by the banks. Often when the rejections come through, he said, his staff cannot identify any reason for their failure.

“In a country that needs housing as desperately as South Africa does,” said Bauer, “these rejections and delays are especially frustrating – and, of course, they cost the developers very large sums of money.”

The good news, said Bauer, is that the effect of the lower interest rates, which always take six to nine months to become evident, can at last clearly be seen. This year sales enquiries at Bardale Village have been 70% up on the last quarter of last year. However, the stricter lending criteria applied by banks and the National Credit Act have raised the required earnings threshold for potential buyers at Bardale Village: to a combined salary of about R12,000 per month, he said. The applicant’s monthly expenses and net surplus (i.e. net income less expenses) are also taken into account, as is his credit history.

Most banks, added Bauer, do have a special niche product for truly affordable housing and on these the interest rates are set at well below prime and in some cases fixed up to five years. This, he said, is a genuine contribution to the alleviation of the housing shortage and should be exploited by first time home buyers who qualify.

However, the upper limit on the housing and income to qualify for these bonds tends to make the task of the developer very difficult. For example, where a R12,000 per month income is required and the loan amount may not exceed R400,000. In practice, said Bauer, with land prices and construction costs at their current levels, it is almost impossible for some developers to produce a suitable product at this price level, although at Bardale it was achieved.

Experience, he said, has also shown that it can be unwise to mix income groups in one area – the more affluent feeling that the lower prices let down the tone of the estate. - IHFM Press Release

Mortgage Plus offers a wide range of advice on different bond options and further advice on the above. Please call us for further information on:

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Banking groups in South Africa have been accused of “lacking consistency” when it comes to approving mortgage bonds and that the criteria applied by the different banks when assessing an application make it confusing and difficult for estate agents who are trying to conclude a sale.

Michael Bauer, managing director of IHPC, says that agents will check affordability levels, payment profiles, credit scoring and do a full credit check on a buyer prior to submitting an application and when the application is rejected, these agents can find no reason for the rejection.

“In a country that has a desperate need for housing, these rejections and delays are extremely frustrating and cost developers large sums of money because they cannot sell the properties,” says Bauer.

IHPC says that its Bardale Village, near Kuils River in the Western Cape is a development where these inconsistencies have been most apparent. Despite the difficulties with banks, Bauer says that enquiries at the development have increased by 70% compared with last year and he sees this as a clear indication that people are keen to buy in the current environment where interest rates are at their lowest level in more than 30 years.

“However, the stricter lending criteria applied by banks, along with the provisions of the National Credit Act means that securing sales remains difficult,” says Bauer. The Bardale Village development is aimed at people earning a combined salary of about R12k a month.

“Most banks do have a niche product for affordable housing that provides interest rates well below prime and, in some cases, bond repayments are fixed for the first five years. This is a genuine contribution to the housing shortage in South Africa and should be exploited by first-time buyers who qualify for these niche products,” he says.

He says that the difficulty facing developers is being able to deliver a home for about R400k so that people with a combined income of R12k a month are able to qualify for a bond.

“The land prices, the high costs of installing services and infrastructure and then building the homes means that it is becoming virtually impossible for developers to provide a home that costs less than R400k,” he adds.

Mortgage Plus offers a wide range of advice on different bond options and further advice on the above. Please call us for further information on:

Complete this short form online

Call us on 011.327.4489

Email: morne@mortgagepluscc.co.za

www.mortgagepluscc.co.za