Property agents rattled as more banks reject bond applications

Real estate agents in disadvantaged and less affluent areas are becoming disillusioned as more of their buyers' bond applications are rejected, says Ivan Neethling, chief executive of Cape estate agency Startprop.

Neethling's firm, which employs about 30 agents, is particularly active in Mitchells Plain, Belhar, Delft and Khayelitsha. The company's Constantia headquarters serves southern suburbs areas such as Plumstead, Southfield, Retreat and Diep River.

"It can be very disappointing for an agent to work hard, achieve eight or 10 sales in a month (always ensuring that the buyers do qualify in terms of the National Credit Act for their bonds) only to find that the banks have turned down over 80 percent of these applications," says Neethling.

The impression recently created by some banks, he says, is that they are facing liquidity problems and huge borrowing costs and are looking mainly for ideal borrowers whose other assets make them risk-free and who are generally applying for fairly large bonds. Such buyers, says Neethling, reduce their loan to equity risk by often putting down 40 percent or more as a deposit.

"Obviously these ideal clients are not thick on the ground and they can never form the bulk of any bank's business - but the perception among agents is that this is the only type of buyer banks are prepared to lend now."

In his firm, says Neethling, before the credit restrictions came through, the demand was such that his team could average 30 sales a month. Now they seldom achieve more than eight or 10 a month, even though the demand is as strong as ever.

"Probably the worst hit sector is RDP housing. A flourishing market for homes valued from R45 000 to R90 000 had built up here, the price depending on the services to the unit and the degree to which the owners had improved the home. Often substantial upgrades to flooring, ceiling, lighting, plumbing and kitchens have been carried out in RDP housing.

"Recently, bond applicants for RDP houses hit a brick wall of indifference and negativity.

"It is difficult not to conclude that, despite ongoing statements of goodwill from the banks and offers to pump billions of rands into the low cost housing sector, the banks are still, in fact, very scared of the risks involved in this type of home investment."

In the Cape, he says, a bank employee had told him that they had had incidences where immediately after the bond applicant had taken occupation all payments had ceased. In another case, high-level intervention had been necessary to get a valuer to visit a greatly improved RDP property. The valuer initially declined to do so because he was convinced his institution would not finance such a property.

Neethling says his experience is that, if properly vetted, RDP buyers can be among the most reliable and steady payers.

"Most of them are honest, hard-working government employees, earning monthly salaries which are adjusted each year for inflation. They are usually in the police services, teaching or nursing professions.

"They understand the whole concept of building up equity in a home by steadily improving it and they have seen others move onto bigger and better homes as a result of doing this.

"In my view, there can be no reason for not granting them a bond. All state employees also receive subsidies which reduce the risk to the banks.

"The good news from this sector, however, is that SANCO and other NGOs have begun to change both buyers' and banks' attitudes and behaviour.

"The civic organisations have stepped in to ensure that buyers know their rights and are properly educated about their responsibilities before taking transfer. They have also made it easier, once the due processes have been carried out and exploitation has been avoided, for the institutions to evict non-paying owners or difficult tenants. The courts have also begun to take a more realistic stance in these matters."

Neethling predicts that over the next five to 10 years the township housing market will become the growth point in the South African housing sector. For this reason, he says, it is essential that the legalities affecting this sector, particularly concerning bond finance, and general education regarding property ownership are put into effect.

Weekend Property supplement (Saturday Argus)

Posted at 09:20AM Nov 22, 2010 by Editor in Home Loans  |  Comments[2]