RATES CUT WELCOMED - BUT THE BANKS INABILITY TO GIVE BONDS IS THE REAL PROBLEM, SAYS INSTITUTE OF ESTATE AGENTS CHAIRMAN
Ivan Neethling, the Chairman of the Western Cape branch of the Institute of Estate Agents (and National Treasurer to the organisation) has joined with other spokespeople for the residential property sector in welcoming the 1% drop in the interest rates announced on 5th February by the South African Reserve Banks Monetary Policy Committee. However, adds Neethling (again echoing other property spokespeople), it will take a great deal more than this to revive an industry in which sales are down 40% to 50%, prices have dropped by up to 30% and the number of agents has fallen by 50%.
The fundamental problem, says Neethling, is not so much high interest rates - although a drop here is always welcome: it is the lack of finance. The banks are unable these days to issue enough bonds and on those they do allow the deposits are very high. This is a recipe for a complete slow-down in the property sector.
The economic fundamentals in South Africa, says Neethling, cannot be blamed for the current situation. SARS, he says, can be congratulated on bringing the inflation rate down to 7,7%, a big reduction on the 11,8% rate of a few months ago and South Africans can be grateful that, with a few minor exceptions, he says, our banks have not been exposed to the First Worlds sub-prime funding. Why, therefore, can they not lend as before?
The reason, it seems, is that the banks have had the ground cut from under their feet by the global financial collapse. This has made it impossible for them to access as much money as they need.
In many areas over 90% of the bonds applied for, says Neethling, are rejected despite agents and originators working hard to prepare them in an acceptable form.
Often, he believes, the rejections lack logic.
They seem to us to stem from the system. Computer formulae are used to assess the applicant without any back-up of personal assessment.
In an effort to cut out their commissions (which vary between 1,5% and 2,2%) the banks are now also trying to reduce their dependence on bond originators, but, in his view, says Neethling, this would be disastrous.
The argument is that it will make the banks more competitive - but it will cost a lot more than the originators 2% to train and reintroduce qualified bond applicant services into their own organizations.
Similarly, says Neethling, he does not believe that it is a good idea that banks should now be trying to set up home loan divisions within their branches rather than having a special division for them.
Neethling says that he now expects the first noticeable upswing in the housing sector to become evident from early 2010 onwards and it will, he says, undoubtedly be buoyed up by the World Soccer Cup drive and excitement.
I do realise that the 2010 factor has been overworked and overplayed by certain people, but it will do much to boost the economy and the housing market, particularly if, as expected, we get further interest rate cuts this year.
These cuts, says Neethling, are likely to be supported by the ANC rank and file who, it seems, are now placing job creation ahead of inflation control and whose voices are likely to be listened to in the run up to the elections.
Article by: www.ieasa.co.za