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Home arrow News arrow Africa arrow Chink of light for South African property market not helped by lending crackdown

Chink of light for South African property market not helped by lending crackdown

Thursday, 30 October 2008
South Africa sees an increase in property activity
South Africa sees an increase in property activity

A number of real estate agents in South Africa are reporting a sudden increase in activity suggesting that the property market slowdown is bottoming out but it is too early to be over hopeful others are warning.

In particular high interest rates and lenders continuing to tighten their criteria is still making it difficult for purchasers, especially first time buyers, to obtain finance.

'It's not clear what the basis is for this enthusiasm,' said Mike Bester, CEO of Reality 1 International Property Group. 'Until interest rates start to come down there is still a large obstacle to accessing home finance and many buyers simply don't have the necessary deposit to qualify for a mortgage,' he added.

This means the property market is unlikely to turn just yet, he cautioned.

However inflation is expected to fall in the coming months, according to Azar Jammine, chief economist at Econometrix, which will help liquidity.

Bester thinks investors should not expect some kind of miracle upturn. 'We need to be realistic and wait for real evidence before we can be sure that the worst is over and property is recovering. At the same time do whatever you can to ensure that you hold on to your property or enter the property market as soon as possible,' he suggested.

But finance is still difficult. Standard Bank, for example, is now demanding much larger deposits and introduced tough new lending criteria. Absa has also tightened its lending criteria to residential property buyers. FNB is re-assessing it home loans criteria.

Donnie Claassen of Quantro Garden Route, an originator that specialises in loans to property investors, said the banks are being stricter because of higher interest rates and lower capital growth on properties.

The property finance specialist said people who are hoping to buy real estate with the help of a bank must ensure they have a clean credit record. First-time buyers are 'definitely affected more' by more stringent requirements by banks because they tend not to have deposits.

Other lenders are sneaking in added costs, according to Bill Rawson, chairman of the Rawson Property Group.

'Certain local banks are imposing big penalties on mortgage bond holders who fail to give a full three months' notice of their intention to terminate a bond. The penalty is very often three months' bond payments, a large sum by any standards,' he said.


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