Banks are looking more favourably at loans to the lower end of the market

The recent initiative by FNB and ABSA, and more recently Standard Bank, to increase the credit flow to the lower end of the housing market will prove a very welcome boost to the property market, says Ivan Neethling, Chairman of the Western Cape branch of the Institute of Estate Agents.

“With Standard Bank now again allowing 100% bonds to the affordable housing market and FNB and ABSA willing to lend to persons earning under R11 000 and R15 000 respectively, we could now see a marked pick-up in this sector of the housing market.”

This sort of bank help, added Neethling, is even more necessary now that the NHFC (National Housing Finance Corporation) has withdrawn all funding. Their funding, he said, had been aimed primarily at houses priced under R400 000 and had provided useful support to this housing sector – but this funding from the National Treasury had run dry and they are not expecting a further allocation in the near future.

“Now attitudes of the banks indicate that they are once again prepared to lend into this market needs now to be tested. The experience of many potential homeowners thus far has been that when the applications are lodged, the banks decline a high percentage of these applications on the basis that they cannot find sufficient value in the properties,” said Neethling.

Neethling added that he and others in the Institute of Estate Agents would like to see some of the very large sums pledged by the banks to facilitate the housing revival going to new developments. These, he said, had been brought almost to a standstill since the downturn in the housing sector and the cutting off of funds.

“Obviously home loans are important,” said Neethling, “but if we do not get a great deal more affordable housing erected quickly, the already large backlog will increase and once we are out of this recession, the cost of existing homes will escalate fast, putting the possibility of home ownership still further beyond the reach of a large section of the buyers. Apart from the fact that we desperately need houses, we also need the extra jobs that major housing contracts make available. Rand-for-rand spent, the construction industry still provides more jobs than any other sector.”

Asked if the banks easing up on their credit criteria will lead to a bottoming out of prices in the residential sector, Neethling said that, together with the latest 50 base points drop in the repro rate (and a much needed further drop), it does at last appear that the turnaround is not far off.

“Worldwide we are into an era of low interest rates which must eventually foster economic growth. The lower interest rates in South Africa should have the same effect here. The South African Reserve Bank has throughout the recent crisis in my view operated too cautiously, holding back on interest rate drops instead of tackling the recession head-on with one or two really major interest cuts which, had they come through earlier, could have averted some of the serious problems we have recently been experiencing in the residential sector.”

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