NCA being used to redline buyers
The rich in SAs property market are getting richer while the poor get poorer because of the way the National Credit Act (NCA) is being applied.
So says Lew Geffen, chairman of Sothebys International Realty in SA, who notes: The wealthiest homebuyers or actually those considered most creditworthy by the banks - often dont actually need bank finance, and so are able to upgrade and invest now at good prices which will enable them to gain maximum advantage from the next market upturn.
But the lack of access to credit because of the way the banks are applying the NCA is shutting poorer buyers or rather those with smaller cash reserves - out of the market and denying them the opportunity to build wealth through home ownership.
In fact, the door has not just been closed on them, it has been slamlocked, and the worst affected are black buyers who can afford monthly bond repayments but have not had time to build up extensive credit histories or asset bases that would make them better risks in the eyes of the banks.
In 2007, he points out, at least 25% of home sales by his company were to newly-wealthy beneficiaries of BEE. But after the introduction of the NCA in 2008, the percentage of black buyers in traditional suburbs dropped back to 15% and now we are back at 5% - which is where we were in 1994, just after the first democratic election.
Geffen says that in previous property cycles, low property prices and relatively high rentals always signalled an upturn in the property market as tenants realised that they could afford the monthly bond repayments on a home of their own just as easily as the rent they were paying.
But this is not happening this time around. Although there is enough demand to send the market back into a boom phase, the process is being blocked by the banks using the NCA to discriminate in borrower selection, and many people who could quite well afford to become homeowners are being forced to remain tenants.
He hastens to say that he supports the idea of homebuyers having equity in their properties in the form of deposits, but I also believe there should be one set of rules for everyone. At the moment some people are getting 100% bonds at lower interest rates while others are only able to get 70% bonds at higher interest rates.
This is akin to the notorious redlining practices of the 1980s and 90s, the only difference being that the focus now is on keeping certain borrowers out of the lending picture rather than certain areas. And it is hardly what was intended when the NCA was introduced, which was essentially to protect consumers from unscrupulous lending practices.
Article by: www.sothebysrealty.co.za