PROPERTY: Bond Application Difficulties
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Picking up on the widespread comments from estate agency people at the Cape about the huge difficulties now faced by their clients when they apply for bonds, Ivan Neethling, Chief Executive of the Cape real estate agency Startprop, said that this had resulted in the agents in the less affluent and disadvantaged areas “becoming very disillusioned”.
Neethling’s firm, which employs some 30 agents, is particularly active in Mitchells Plain, Belhar, Delft and Khayelitsha – with a Constantia headquarters serving 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 ten 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% of these applications,” said Neethling.
The impression recently created by some banks, he said, is that they are facing liquidity problems and huge borrowing costs and at this stage are looking mainly for those ideal borrowers whose other assets make them risk free and who are generally applying for fairly large bonds. Such buyers, said Neethling, reduce their loan to equity risk by often putting down 40% or even 50% 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 type of buyer the banks are prepared to lend to today.”
In his firm, said Neethling, before the credit restrictions came through, the demand was such that his team could average 30 sales per month. Now they seldom achieve more than eight or ten per month, even though the demand is as strong as ever.
Probably the worst hit sector, added Neethling, 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, said Neethling, bond applicants for RDP houses had hit a brick wall of indifference and/or negativity.
“It is difficult not to conclude that, despite ongoing statements of goodwill from the banks and offers to pump literally 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 said, a bank employee had told him that they had had incidences where immediately after taking occupation all bond payments had ceased.
In another case, he said, high-level intervention had been necessary to get a valuer to visit a greatly improved RDP property. The valuer had declined to do so because he was convinced that his institution would not finance such a property.
Neethling said that, by contrast, 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, said Neethling, is that SANCO and other NGO’s 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 a non-paying owner or a difficult tenant. The courts have also begun to take a more realistic stance in these matters.”
Certain specific banking organisations, said Neethling, have begun to deal directly with communities and to achieve widespread acceptance.
“A regular Radio Zibonele programme on property matters targeted mainly at Khayelitsha has also,” he said, “helped educate many who until now have been totally unfamiliar with property law.
“There is,” said Neethling, “a huge task to be carried out here. In the townships it has until recently often been the practice for the ownership of the house to be changed without any documentation at all - once the house has been handed over and keys received the new owner is usually quite satisfied with the deal. Certain homes, we have discovered, have been sold without following any transfer process and when the original title deeds are hunted for they are simply not there.”
Neethling predicted that over the next five to ten years the township housing market would become the growth point in the South African housing sector. For this reason, he said, it is essential that the legalities affecting this sector, particularly as regards bond finance, and general education regarding property ownership are put into effect.
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