New bond availabilities are welcome - but are hampered by negative bank valuations, says Western Cape IEASA chairman

Confirming recent reports from many of the members of his institute, Ivan Neethling, Chairman of the Western Cape branch of the Institute of Estate Agents of South Africa, said that the financial institutions are now more willing to give mortgage bonds on home purchases - subject to the stringent National Credit Act criteria - but, as yet, the main beneficiaries of this have been buyers in the middle and upper income brackets.

Standard Bank’s decision once again to offer 100% bonds is particularly welcome, said Neethling, even though it could be seen as an attempt simply to reclaim ground lost to Nedbank and FNB, who moved back into 100% bonds earlier and who have remained more active in the bond market generally.

The bed news, however, said Neethling, is that the high rejection rate by all banks of the less affluent buyers over the last year (up to 90% of applications have been returned in some areas) had, said Neethling, almost killed this market. It had certainly deterred many potential buyers from reapplying, even though conditions are now easier, and it had also discouraged sellers from putting their houses on the market.

“The 100% bond offers,” added Neethling, “frequently go hand-in-hand with drastic devaluations of the property to be funded.”

“It has not been unusual to find that the bank valuer has downgraded the home’s value by 20% to 25%. Banks have been treating the low cost sales as if the buyers are all in financial difficulties. As a result, the only real activity at this end of the market has, until recently, been the distress sales – and many potential sellers have withdrawn their properties.”

Cash buyers often using provident funds are, however, prominent at the lower end of the market, said Neethling.

The “pressure” for homes from the lower end of the market (over two million families now await an affordable place of their own), said Neethling, is steadily increasing and, coupled to the huge backlog in the provision of new homes caused by developers opting out until funds are more readily available and building costs are more equable, will inevitably result in house prices rising rapidly once the current recession ends – “which is not far off”.

“Those who are refusing to buy now in the belief that house prices will continue to fall could, I believe, look very short-sighted by the end of 2010,” said Neethling.

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