A big win-win – Property buyers and sellers now have reason to smile – Reale Media, March 2014
We operate in a property market with a housing backlog of an astounding 2.1 million houses, which government says will require a “miracle” to supply. This huge demand, given that supply is constrained by dismal building and development figures over the last decade, presents a massive opportunity – for developers, for property owners and for property investors – now and in the future.
So where is the problem? The challenge
The problem is that potential buyers cannot buy property, no matter how much they want to or need to, because they cannot get finance. And this means that sellers can’t sell their properties, no matter how much they want to or need to. And developers can’t sell units in new developments, no matter how enormous the demand or the housing backlog.
And buy-to-let property investors cannot supply the rapidly- growing demand for rental properties, no matter how great the shortages of rental stock. It is the inability of buyers to get finance to buy property that is strangling the local property market, and this is driven by two factors:
• The unavailability of credit; and
• The cost of credit.
Unavailability of credit
After approving 80% of home loan applications and handing out 118% home loans like candy before the National Credit Act (NCA) was implemented, the banks are now turning down half of home loan applications and demanding deposits of 15% or more, which buyers have to fund from their own pockets, over and above the property acquisition costs they need to pay such as transfer duty and bond costs.
This means that even those South Africans who have saved up enough to cover the transfer duty and other property acquisition costs and have enough monthly income to afford a 100% bond cannot obtain finance. And, of course, the entrepreneurial South Africans – those who run their own businesses (self-employed) and property investors (especially those who already do have bonds), are simply cut out of mortgage finance running, regardless of their ability to service the loans.
And with government’s proposed credit amnesty on the cards, as well as the recent interest rate increase, which may signal a rising phase in the interest rate cycle, the availability of credit may become even more constrained in the near
future. Read more…