Credit Act Flays First-Time Buyers
THE effects of the implementation of the National Credit Act, a relatively expensive residential market and higher interest rates are now being keenly felt, with First National Bank (FNB) reporting that activity in the residential property market is at its lowest level since the inception of the FNB Residential Property Barometer in 2003.

According to the latest FNB Residential Property Barometer, first-time buyers are also feeling the pinch of a tighter residential environment with the proportion of first-time buyers decreasing to 16% of all buyers from 32% in early 2005.

FNB Homeloans CEO Jan Kleynhans said yesterday that first-time buyers were affected by "general affordability constraints".

Kleynhans said the combination of the National Credit Act, implemented in June, and the recent interest rate hike had curtailed activity in this segment of the market.

This was due to the stringent affordability assessments and qualifying criteria laid down under the act.

The FNB Residential Property Barometer gauges the sentiment of 150 real estate professionals.

The FNB Residential Property Confidence Indicator, which shows activity levels in the market, now measured 4,96, down from a high of 7,7 in the first quarter of 2004.

"Activity in the residential property market is at its lowest point since the inception of this survey," said Kleynhans.

He said the changes in the market were predominantly as a result of interest rate hikes, affordability constraints and the new credit act.

Some commentators voiced concerns earlier this year that the credit act would slow down property sales as banks implemented all the provisions of the legislation.

The credit act aims to protect consumers from reckless lending.

In terms of the legislation, banks are required to ensure that consumers can afford the credit that is being advanced to them by taking into account their existing debt levels and cost-of-living commitments.

Kleynhans said that as far as the credit act was concerned, 43% of industry professionals surveyed claimed that applicants were struggling to qualify for home loans.

In the lower-priced segment of the residential property market, 67% of real estate professionals said qualification and affordability issues were "significant hurdles" for buyers.

He said professionals operating in the upper end of the market said customers were "more immune to the effects" of the credit act largely due to the proportion of cash buyers in this sector.

Kleynhans said the consensus among industry players was that the new legislation was good for the South African economy.

But these professionals said they were concerned about the effect it was having on their businesses, he said.

Kleynhans said the concern was more "prevalent among those operating in the lower- priced segment" of the market.

But he said industry professionals were optimistic the stumbling blocks following the implementation of the credit act would be short lived and would stabilise in the coming months.

David Green, MD of commercial and residential property brokers Pace Property Group, said the FNB Property Barometer correctly indicated that the number of first-time home buyers had declined.

"But on the flip side, this has had a positive effect on the buy-to-let market as investors are seeing increased tenant activity and an upward drift in rentals," said Green.

"Because people are not buying, they are renting so the buyers in the market at the moment are investor buyers who are capitalising on the larger tenant pool."

Article by: Nick Wilson -