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Basel III rule changes will prove positive for property buyers

For many months, interest rate concessions on home loans have been virtually unheard of, and many borrowers have been able to secure loans only at one or two percentage points above prime.

But now things are set to ease somewhat, says Rudi Botha, chief executive of mortgage originator BetterBond. This is thanks to a decision by the Basel Committee on Banking Supervision ( BCBS) to change some of the new capital reserve requirements for banks that were due to be implemented in 2015.

These liquidity rules, proposed in 2010 as part of the Basel III plan to help banks survive financial crises, were widely felt to be too stringent for banks in emerging or developing economies like South Africa. Nonetheless, financial institutions in those countries had begun preparing for their implementation by raising their lending rates, says Botha.

"However, earlier this year the BCBS widened the definition of the type of assets that banks will need to hold in reserve as a buffer against financial stress, and also extended the deadline for the full implementation of the tal reserve requirements should mean banks have more money to lend and can afford to be a little more lenient when it comes to home loan interest rates.

"And even a small rate concession can make a huge difference to the total price paid for a home over the 20-year life of a loan. At 8.5 percent, for example, the total interest paid on a R1m loan over 20 years would be R1.08m, and at 9 percent, the total interest paid on the same loan would be R1.16m."

As things stand, he says, the banks already appear to be moving back into home loan lending and away from higher interest rate personal loans, and BetterBond has seen the average home loan approval rate increase from 61 percent to 67 percent in the past 12 months.

"In addition, the banks have been reporting some better results from their home loan divisions, and as the returns on this type of lending continue to improve, we believe the capital allocations by their treasury departments for home loans will become more favourable and enable more rate concessions, especially with the Basel III rules having been changed." A RECENT survey indicates that about 65 000 people are employed directly and indirectly on secure gated estates and sectional title residential developments.

Of the total, 9 864 are employed directly by home owners' associations (HOAs), and other estate bodies such as clubs and schools account for 23 376. The remaining 31 680 people are employed in outsourced services like security and landscaping.

"On a conservative earnings estimate of R5 000 a job a month, the organised and managed community sector accounts for an annual payment in salaries and wages of at least R3.9 billion," says Jeff Gilmour, president of the Association of Residential Communities (ARC), which conducted the nationwide survey.

"If the front-end costs of construction and development are taken out of the equation, as well as direct employment by individual households, the biggest ongoing generator of formal employment in the residential property sector in South Africa is the management and maintenance of community estates and complexes."

The survey was conducted by ARC across 80 of its membership of 130 estates countrywide, which represents about 45 percent of the market in terms of number of homes.

"The data supplied by the participating ARC members were then extrapolated across the rest of our membership, as well as non-ARC-affiliated estates, to provide a national picture," says Gilmour.

"Organised communities account for 8.3 percent of South Africa's developed land and are home to around 5 million people. HOAs in gated estates have assets of R800bn under their management."


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