Current USA and SA property conditions not comparable

Any suggestion that the South African property market could follow the USA property market in its recent downward plunge is way off the mark, says Anthony Smook, Chief Executive of the new, but fast growing, bond origination company, A Mortgage Loan, which is headquartered in Paarl.

In the USA, said Smook, a lack of investment and banking regulations and high pressure selling by bond salesmen resulted in some 10% of the total population overextending themselves on their housing purchases.

“In what is now known as the sub-prime scenario,” said Smook, “people were able to qualify for bonds that exceeded the value of the houses they were purchasing. Very often they did not intend to live in the houses but were buying simply as an investment and taking on three, four or more units in much the same way as people purchase shares. This was possible because until 2007 sustained growth in the residential market had led even normally prudent Americans to believe that US housing would always increase in value despite an oversupply situation clearly becoming a possibility.”

“When at last the downturn came and houses lost value, many of the overoptimistic investors found themselves having to sell at a loss – and this was frequently carried at least partially by the banks which had issued the mortgages – hence the huge losses recorded recently by many banks.”

The process, said Smook, is likely to be ongoing in the US for at least another half year and the US market will probably not find itself on a really stable footing until March 2009.

By contrast, said Smook, South Africa is in a far better position. Very few SA banks, he said, had allowed borrowers to take loans in excess of the property’s value and banks had been far more vigilant in checking the applicant’s earnings and financial situation. Then, the timely introduction of the National Credit Act had further tightened up the lending criteria.

Furthermore, in SA, the mortgage bond originators (including his own company A Mortgage Loan) had not resorted to high pressure selling and had been scrupulous in checking people’s real incomes and credit worthiness in accordance with the parameters stipulated by the National Credit Act. In addition, SA banks’ exposure to the big, apparently attractive, sub-prime packages sold world-wide by the USA and European banks had been very limited.

SA’s healthier situation, said Smook, had resulted in house prices holding up well despite the far lower sales figures to date and, although repossessions are now on the increase, they are a long way off the dangerously high level being experienced in the USA.

All this, said Smook, should give reasons for confidence and for continuing to invest in property now that prices are more competitive. A Mortgage Loan, he said, will stick to its expansion plans although now moving ahead more slowly. They have in the last year set up new branches in Langebaan, Vredenburg and George and have targeted certain other towns in the West and Eastern Cape for later expansion. They are also, he said, recruiting consultants with suitable backgrounds.

In a recent separate statement, Smook has said that people should not be intimidated by the National Credit Act but should realise that with the guidance of a good bond originator keen to maintain his standing with the banks they will be advised about the ground rules now pertaining to bonds and, if they follow the originator’s advice, will still stand a very good chance of being successful in their application.

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