Property proves it's investment worth
Rudi Botha, CEO of Betterbond, South Africa’s largest originator, discusses the change in property market trends and the recent increase in home-buying activity

No one wants to talk about property and the dismal performance the market experienced in 2009. So while lessons were learnt and homeowners had to radically tighten their belts and curb spending to survive the recession, the good news is that the worst is behind us and our feet are firmly planted on the road to recovery. This according to Rudi Botha, CEO of Betterbond; South Africa’s largest mortgage originator, who says that property is once again being recognised as one of the best asset classes in which to invest.

Botha says that the first signal that property market conditions were starting to turn late last year was when Betterbond saw a substantial increase in its home loan volumes during the months of September and October. He says the group experienced a 90% increase in home loan applications, although this was coming off a low base.

“Due to the National Credit Act and tighter lending criteria during the recession, April 2008 saw only 24% of home loan applications converted into granted bonds. This was a radical decline in success in comparison to 2005 and 2006 where 78% of all home loan applications were granted. However,” says Botha, “this situation has improved dramatically since October last year and now between 45% and 46% of home loan applications are being granted. This higher level of granted home loans has continued into 2010, and we are hoping to see these approval levels persist and even increase to around the 60% mark before the year is out.”

Botha is of the opinion that these increased levels in home loan approvals are partly due to the expertise of mortgage originators. He points out that mortgage originators offer a valuable service by acting as a one-stop shop, saving home buyers time and the hassle of having to deal directly with the banks. But more importantly, Botha emphasises the fact that a mortgage originator offers home buyers a free service, where skilled and professional consultants, who have in-depth product knowledge, have a higher chance of securing a home loan on the buyer’s behalf. This is because the origination consultants have insight into exactly what information the banks are looking for in each home loan application and can therefore advise the applicant accordingly. Botha says that aside from ensuring that all the correct documentation is included in the bond application, origination consultants are also have a higher chance of securing a good home loan deal as they simultaneously submit one application to all four major banks, giving the applicant a much greater chance of a successful application.

Botha points out that activity in the property market has increased by 40%, which is measured by the number of offers to purchase that were made in February last year compared to the number made in February this year. He believes that the key drivers for increased activity in the market are the fact that the banks have relaxed their lending criteria and that the interest rate is still at an all time low. Says Botha: “In November 1993, the interest rate had dropped from the high of 21% in November 1991 to 15%. While it peaked again in late 1998 at 24%, it has steadily dropped to its current 10%. This current rate is certainly the lowest it’s been in a good number of years, and we are expecting to stay at around this level for the next year to 18 months,” says Botha.

Looking at buyer profile, Botha notes that four or five years ago, around 25% of all buyers were investors. This figure has decreased dramatically to around 5% of all bond applicants, he says, with buy-to-live purchasers making up about 90% of all bond applications. “People are definitely starting to invest more confidently in property again,” he says, “with a large number of first time homebuyers wanting to break into the property market while prices are still relatively affordable.”

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