National Credit Act still limiting residential sales

The recent half a percentage drop in the interest rates, though welcome, is not as significant a boost to the residential market as might be expected, says Lanice Steward, MD of Anne Porter Knight Frank, the Cape Town estate agency.

“We have to take into account the rises in rates, electricity costs and fuel prices all of which together will nullify the 0,5% reduction. At the same time we can be grateful for it because in a sense it keeps home buyers on roughly the same budget as they had previously, despite these other increased costs.”

The chief limiting factor to growth in the residential property sector, said Steward, is still the National Credit Act and the stringent criteria that it has caused the banks to impose.

Nevertheless, said Steward, even here there is some good news.

“The latest oobarometer shows that the size of bonds in February 2010 was 13,9% up on those of February 2009. This has come about partly because property has slightly increased in value (the average South African home sold in February 2009 at R807,042 but the latest figure is R895,031) but also because the banks are now more willing than previously to accept smaller deposits.”

There has, said Steward, been a marked increase (29%) in the number of 100% bonds issued. In August 2009 only 18% of applications for 100% bonds were approved but the figure is now 32%. What is more 100% bonds now form 47% of the total money loaned, a very high proportion.

“The gradual easing up on the National Credit Act criteria, especially for those needing 100% bonds, is having an effect on the whole property market – but we are still in a tough borrowing phase – before introduction of the NC Act only 8% of bond applicants failed to fulfil the bank’s credit criteria. Today the figure is 14% and many of those who have applied have had to reduce the size of the bonds they want very significantly.”

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