National Credit Act Prevents Property Market Crash
The South African home loan market is faced with many challenges, including the US home loan crisis, the new National Credit Act, rising interest rates, the deeds office strike and the winter seasonality. But not even all of this could cause a total standstill of the property market in our country.
According to Jack Trevena, MD of bond originator BondExcel, the US home loan market is different to the South African home loan market. In the US some sub-prime lending has become a multibillion-dollar industry that is now spinning out of control. Sub-prime lending is an unusual and rather unsuitable term for home loans granted to individuals who, under any normal credit policy, would never be able to obtain a home loan. Sub-prime mortgage lenders offer a much higher rate than the prime rate and consumers are struggling to keep head above water.
Enhance Your Portfolio
The old saying “don’t put all your eggs in one basket”, surely makes a comeback this year. If you’re aiming to build a property fund portfolio, you might want to consider your options.
IFA Hotels & Resorts, listed in the hotels sector of the JSE 18 months ago, is likely to test the most fundamental tenet of property as an asset class; it is a long-term investment in income rather than capital growth. It is the first big property development company to list on the JSE since the 1960s. It is 85%-held by the parent IFA Hotels & Resorts, listed in Kuwait and Dubai, which is in turn 55%-controlled by International Financial Advisors, a listed Kuwaiti giant headed by Jassim Al Bahar.
Demand for Affordable Housing Grows
RBA Housing, an affordable, fully bonded housing developer, hopes to complete 1037 houses this year to cater for the high demand from emerging middle class buyers. RBA Housing specialises in developing properties between R250 000 and R700 000 and has 600 houses under construction in 20 project areas of Johannesburg, Tshwane, the Vaal Triangle and Polokwane. The sizes of these properties vary from 40sq m to 80sq m.
The Banking Association of South Africa estimates that around 132 000 units a year need to be built in the R250 000 – R700 000 price bracket to keep up with demand. The company has enough land available to continue building for the next five years. CEO of RBA Housing, David Wentzel, says the company is hoping to bring a further 1 200 houses to the market next year.
Demand for Cheaper Housing Stays High
The latest house price index shows that residential property continues to slow down, but there is still strong growth at the cheaper end of the market. According to the Absa house price index for June, y/y growth was 14.9% on average.
The average house price on Absa’s books now stands close to R1m, at R924 800. The National Credit Act has an effect on the growth in house prices that could only become visible in a few months’ time.
The National Credit Act (NCA) and Debt Counselling
The National Credit Act (NCA) came into effect on the 1st of June this year and is now granting consumers the right to apply for debt counselling. Registered Debt Counsellors are the only ones that can provide debt counselling.
Nedbank is one of the largest lenders in South Africa, and has always offered financial advice to clients, including those that are in financial difficulty. Credit providers cannot be debt counsellors, but Nedbank still offers debt counselling via a dedicated Nedbank Debt Rehabilitation and Recovery Department.
Loan terminology explained
A Loan to Value Ratio means that your home loan amount is equal to the value of your property. There are instances where a bank will advance you a loan of more than 100% of the value of the property, for example 108%, so that transfer duties and the like are covered by your loan. It’s actually pretty straightforward.
A Readvance is when a portion of your home loan is repaid and you can borrow all or part of the repaid amount again. You don’t have to register another bond. Your property and financial stability will be re-assessed. A readvance comes in handy when you wish to renovate or improve your home. What you will have to provide the financial institution with in order to apply for a readvance: proof of permanent income, a quotation of the proposed renovations, or if applicable, approved building plans.