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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 decision by the South African Reserve Bank (SARB) to cut interest rates by 0,5% shows that the housing market has returned to a weakening trend and this would seem to set the scene for a relatively good buying period.
So says John Loos, property economist at FNB, who adds that despite the repo rate dropping to 6% and the prime rate falling to single digits from 10% to 9,5% for the first time in three decades, home owners should still not be lulled into a false sense of security.
“Potential buyers should be aware that this does not mean that there are no housing-related cost increases. Municipal rates and utilities tariffs are set to be a key source of housing-related cost increase in the next few years, as utilities look to find the funding for much-needed infrastructure. Eskom is presently the biggest driver of home-related cost increases.
“In addition, applicable especially to Gauteng, looming large is a major increase in transport costs for many people, as many of the province’s freeways are set to become toll roads.
“What the SARB is currently giving, other authorities are taking back.”
He says one would therefore be well-advised to buy a home well within one’s means, making provision for the big housing-related cost increases, and rising transport costs mean special consideration for location relative to one’s commuting destination.
Jacques du Toit, property strategist at Absa, said based on the latest cut in interest rates, mortgage repayments will now be about 31% lower compared with late 2008, when the mortgage rate was at a level of 15,5%.
“The cumulative 600 basis points worth of interest rate cuts since December 2008 have caused the cost of servicing household debt, including mortgage debt, to drop significantly. However, many households are still struggling with a high debt burden, with the ratio of household debt to disposable income above the level of 78%. The forecast is for the debt ratio to remain around this level towards the end of the year and into 2011.”
According to Absa’s calculations, house price growth slowed down to a nominal 7,1% y/y in August 2010 on the back of the base effect of a strong recovery in price growth in the second half of last year. “House price growth is expected to taper off further towards the end of the year, and to remain in single digits in 2011. The lower interest rates, however, will support the property market, but are not seen as a major stimulating factor.
“After bottoming in late 2009, year-on-year (y/y) growth in household mortgage advances remained relatively low in the first seven months of this year, reflecting conditions with regard to household finances, the extent of consumer confidence, and the effect of the National Credit Act (NCA). Household mortgage advances will be supported by the low interest rates, but are forecast to continue to record single-digit y/y growth in the rest of 2010.”
Loos said the short-term positive impact of the latest cut will be too small to change the weakening trend in the property market. “This is because the negative factors slowing the market at present appear significantly more powerful. These are twofold, i.e. a slowing economy as well as the wearing off of the huge interest rate stimulus emanating from 5 percentage points worth of rate cuts in the period December 2008 to August 2009.
“The wearing off of such a major stimulus can hardly be offset by today’s small interest rate reduction. Therefore, we expect the ‘mini-cycle’ slowdown in the residential market to continue, with y/y house price inflation (at 7,2% in August) to continue to decline steadily towards year-end.”
Dr Andrew Golding, CE of the Pam Golding Property group, says this is good news for existing home owners and for prospective home buyers. “Although the residential property market has shown some increased activity in terms of sales volumes (ie units sold), the ongoing constrained economic conditions and limited access to bond finance, coupled with the significantly increased electricity and rates tariffs, is still hampering significant recovery in the housing sector.
“With the arrival of spring, there is usually a natural seasonal increase in activity in the property market and there is every expectation that this season will be no different, particularly given the fact that the market experienced an ‘unnatural’ slowdown during the six weeks of the Soccer World Cup and appears to be catching up.”
Golding says some signs of green shoots of recovery are there, albeit to at least the market activity levels that were present in the run-up to the World Cup. “These activity levels are in themselves 30% up on last year (2009). A number of factors are responsible for this recovery and include improving market sentiment, i.e. a sense that the market might have reached the bottom; improving bank lending; greater realism amongst sellers regarding the current market value of their properties; and an increase in the number of buyers looking to transact.
“Show house attendances are generally on the increase – in line with expected trends for this time of the year. We have also seen the slow but steady re-emergence of buy-to-let investors in all the major metropolitan areas of the country. International enquiries, while generally slower than in previous years, have also begun to increase. In respect of the development market, there are growing indicators that the larger developers are poised to begin re-entering the market.
“As far as house values are concerned, our view is that for the remainder of this calendar year, prices will remain relatively steady with house price growth expected to be somewhere between 0% and 5%.
“From the perspective of price sectors most in demand, there is very little change to the status quo which has been evident for some time, namely with the market from R800k to R1,5m being the most active. However, with properly qualified buyers and realistic sellers, properties are moving in all price segments from the affordable housing segment right through to the ‘über prime’ market.”
Samuel Seeff, Chairman of Seeff Property Services, says although the rate cut was much-needed and expected, a bolder approach would have been welcome. “We would have liked to have seen a cut of 0,75% or even 1% as a boost to the economy.
“However, this issue is not as significant to the market as the banks’ approach to lending. If we are going to have any sort of kick-start to the property market, it will come about as a result of banks reducing their criteria in terms of approving loans.
“The interest rate is not the factor that is holding the market back right now – it is the banks. We are not even talking about 100% loans-to-value bonds being rejected – there are people prepared to put in equity, and the banks are still not approving them. If they could start to relax on their criteria this would begin getting the market going, and would be of benefit to all.
“I am not asking for banks to give 100% loans. I think their focus on ensuring that the buyer/investor puts some money into the transaction is a good one. However, we have seen cases where the buyer is asking for no more than 50% and is putting in as much as R1m or R1,5m and looking for another R1-1,5m, and this is still not approved.
“It is this type of thinking that holds the market back. There is sufficient buyer interest, enough attendance at showhouses and plenty of buyer viewing, but the offers to purchase which are not being approved are holding back the market at the moment.”
Jan Davel, the new MD of the RealNet group, says the minimum monthly repayment on a 20-year home loan of R500k will now decrease by R164.
“This will obviously be of some help to existing homeowners, but the real benefit of the Reserve Bank’s decision this week is that it will make it easier for potential homebuyers to qualify for loans. For example, the monthly earnings required to qualify for a R500k loan at 9,5% will be some R15,500, compared to the R16,100 required at the previous prime rate of 10%.”
And prospective buyers, he says, will be further assisted by the fact that the rate cuts will shrink their existing monthly expenditure, which in terms of the NCA must also be assessed before a loan can be granted. “Repayments on cars, furniture, clothes and credit cards will all decrease.
“What is more, with a good credit record and a deposit, some borrowers will even be able to secure loans at below prime rate, making it even more affordable for them to buy property.”
However, he does not expect the rate cuts to prompt a spate of new borrowing or an immediate spike in residential sales, but rather to help the property market maintain its current momentum towards full recovery.
“For one thing, there is quite a shortage of affordable, entry-level stock at this stage, because developers are bringing very few new small homes to the market and the average price of existing small homes has climbed steeply in the past year.
“And on the other hand, the middle-market upgrading that might have been boosted by the rate cuts will be quite constrained, we believe, by the effect on household budgets of higher municipal rates and service charges. Most existing homeowners will probably rather take this as an opportunity to reduce debt – but that will benefit the property market in the longer-term.” – Eugene Brink
By choosing Mortgage Plus for a loan, you will get professional advice to make sure you are getting the best deal possible.
CONTACT US
Speak to a home loan consultant about financing your new property or reviewing your existing mortgage. We are able to assist in lowering your bond repayments and securing attorney discounts.
Complete this short form online
Call us on 011.327.4489
Email: morne@mortgagepluscc.co.za
www.mortgagepluscc.co.za
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