Cure for housing woes?
The banks reluctance to approve mortgage loans, says Tony Clarke, MD of Rawson Properties, is still the major reason for the severe slowdown experienced in SA housing sales.
"It looks," said Clarke, "as if the banks are now almost too aware of possible difficulties faced by bond applicants, are too stringent in applying the National Credit Act and far too concerned about shareholders reactions.
"They have become so risk averse that even the best clients can only get a bond at 0.5 percent below prime and many are now paying 0.5 percent to three percent above prime."
The hardest-hit sector, he said, is that which can least afford it those buying in the R300 000 to R700 000 bracket. In one case, the best deal an applicant for a R400 000 house could get was a full three percent above prime.
NCA too severly applied
"I am certain," said Clarke, "that it was never the government's intention that the National Credit Act should be so severely applied. They are, after all, declared supporters of home ownership."
The tight squeeze put on the market by the banks, he said, could cause house prices to drop a further 10 percent this year before values respond to the anticipated lower interest rates and start to move up which, Clarke predicts, will happen in the first half of 2010.
How should the government respond to the banks' stance on mortgage finance?
Clarke believes that they should follow the example set by Australia.
"Australia's credit crisis has been far more severe than ours," said Clarke. "They reacted by making the banks commit themselves to certain amounts as loans on housing then they followed up with regular audits to see that the banks complied. This gave an immediate stimulus to the housing market."
Government should assist first-time buyers
Secondly, said Clarke, the government should assist first-time homebuyers at the lower end of the market to get 100 percent bonds as was possible in the past.
They could do this, he said, by guaranteeing that, should the buyer default, they would pay his deposit up to certain agreed maximums. The buyer, however, would still have to come up with the cash to cover the buying costs which in todays market average 10 to 15 percent of the total sum.
A move of this kind by the government would, said Clarke, soften the banks reluctance to lend and would stimulate the entire market because first time homebuyers almost inevitably move up in the market buying better, more expensive homes when they can realise a profit on their first home. This process, now very evident in SA, said Clarke, tends to be ongoing.
Article from: www.iafrica.com