THE DEVIL IS IN THE DETAILS
High debt and the lack of a deposit continue to plague South African property buyers.
By Lea Jacobs
There was a time, not too long ago, when agents had two major problems to contend with –finding a buyer who was seriously interested in buying a home and finding a buyer who was in a financial position to raise a bond.
Thankfully, it appears that buyers are well and truly back on the scene and that the banks have once again opened the purse strings and are again writing out cheques. Overall, the property market seems to have picked up in all sectors and agents around the country are reporting an increase in sales and enquiries across the board.
The demand for 100% bonds is still high with both Ooba and Bond Gallery indicating that close to 50% of bond applications received are for the full amount. Unfortunately, is Elmar Pittendrigh, managing director of Bond Gallery, also notes that the decline ratio on 100% loans is still higher than in the case where a deposit is available.
There has been a steady influx of first-time buyers and Kay Geldenhuys from Ooba says that 52% of bond applications received by their company comprised first-time buyers.
Sadly, however, the much hyped Finance Linked Individual Subsidy Programme (FLISP), announced by President Zuma in his 2012 State of the Nation Address, hasn’t borne fruit. Daphney Klopper from the Rawson Property Group says that although the FLISP scheme looked exceptionally promising because it offered subsidies of up to R87 000 towards the purchase of a home by a first-time buyer, clients who approached the group, banks or mortgage originators for a bond making use of the scheme have not as yet seen any concrete response to their applications.
Klopper says, “The banks appeared to be equally keen to implement the scheme, but when approached for this type of subsidy were almost always told that the Department of Housing was still establishing the procedures that had to be adhered to and was not yet in a position to grant these subsidies.” She said that this was confirmed by the Western Cape Minister of Housing, Bonginkosi Madikizela, in an interview on Radio 567 Cape Talk. But, says Klopper, he apparently later told Mike van Alphen, national manager of Rawson Finance, that the department thought it essential to “educate” first-time buyers before embarking on the FLISP scheme.
More recently, it was learned via the government’s website information service that the full sum set aside for these subsidies had been entirely allocated as part of the state’s R17,9-billion poverty relief programme. “Exactly to whom the grants had been made was not spelt out, but the net result was that the franchise’s potential homebuyers had clearly been left out in the cold,” says Klopper.
While the lack of a subsidy may be extremely frustrating to those who desperately need a roof over their heads, it has become pretty clear that first-time buyers will benefit from ‘homeownership’ education.
Interestingly, FNB’s Affordable Housing Division has taken its compulsory homeownership education programme for first-time home buyers out of the classroom and onto the web – with great success. First-time homeowners applying for a Smart Bond are expected to complete the course before registration of their bond. Of all the bond applicants, 75% are now choosing to use the e-learning system. Since its introduction of e-learning in February 2013, FNB has seen an 87% decrease in turnaround time for completion of the course from 9.8 days to an average of 1.3 days. There are currently 4 000 first-time homeowners who have either completed or are currently completing the course through e-learning.
“Our homeowners programme has always been an important aspect of the bond registration process for our customers. Good quality financial education on owning a home is vital in order to ensure that homeowners understand the financial impact of their decisions and make the most of their biggest asset,” says Marius Marais, CEO FNB Housing Finance.
First-time buyers aside, Nedbank reports that recent estate agent surveys indicate that smaller-sized properties are still driving activity in the residential market. “Our outlook remains positive, with the growing source of demand from the emerging middle class seeking to upgrade to better homes mostly in middle class areas,” says Timothy Akinnusi
head of sales and customer management at Nedbank Home Loans.
He says that unfortunately consumers’ disposable incomes remain under pressure due to high levels of debt, mainly due to the surge in unsecured lending, which carries much higher interest rates, given the greater risk of default. Consumers are also finding it increasingly difficult to uphold credit repayments resulting in compromised credit bureau profiles. This subsequently prevents them from accessing further credit based on default payment behaviour.
Nedbank’s statistics are backed up by what is going on in the market place. BetterBond reports that it secured bonds for 6 400 buyers during the second quarter of this year. In the same three months, the company’s statistics show that the average approved bond amount for the total market was R770 200. The average approved bond amount for first-time buyers was R619 000.
Self-employed individuals are still finding it more difficult to secure bond finance. Pittendrich notes that it is definitely more challenging in terms of supporting documents required and the amount of motivation in getting the self-employed deals finalised successfully. “This is simply as a result of the responsibility on the bank to ensure that they abide by the National Credit Act (NCA) and reckless lending guidelines.” He says that the banks are required to ensure that a client is able to service his bond instalments by conducting checks on affordability and sustainability of income. In the case of a salaried person, they cannot do more than confirm employment, income etc. with the applicant’s employer. In the case of a self-employed individual, however, the bank requires certain accounting criteria to be met regarding the financial health of the business. These include the latest set of audited financials (also previous years) and management accounts. “Personally, I do not foresee any change in this trend as it does not only rest on the bank’s appetite for lending in the self-employed space, but more so on the requirements in terms of reckless lending,” he says.
The amount of debt that the average South African consumer carries continues to have a negative effect on those attempting to secure a home loan. Rudi Botha, CEO of BetterBond, says that the average household debt to income ratio is currently sitting at around 75%. “This means that although a potential borrower may have a substantial monthly income, a great deal of it is most likely being used to repay existing debt, such as vehicle and furniture repayments, credit and store card instalments, and quite likely the repayments on a personal loan. When all that is taken into account, plus the monthly regular expenses such as food, transport, utilities, insurance and school fees, there is often not enough left to afford the repayments on a home loan. As noted, the NCA requires that the banks check on this before granting any new credit, in order to avoid situations in which the consumer is “over-borrowed. Of course, a large household debt load also makes it difficult for consumers to save money towards a deposit, and with the majority of buyers (65%) being required to pay a deposit in order to be granted a home loan, that is also a challenge – especially to first-time buyers who do not have any equity in an existing property to put towards a deposit,” says Botha.