Banks urged to revisit lending policies on share block

DURBAN (August 14) A leading estate agent has called for the major banks to lift their restrictions on granting home loans to purchasers of share block units.

The appeal comes from Berea-based estate agency principal Rose Deubler in the wake of the last and only lender now stopping its granting of a bond to the value of two thirds of a share block unit following the June 1 introduction of the National Credit Act (NCA).

This action means that share block transactions can only be concluded by full cash payment. Previous to the implementation of the act, approximately 30 percent of share block sales were enabled by a home loan of up to two thirds of the value of the unit and an interest rate of two percentage points above prime.

Deubler, a real estate veteran of 26 years, says while loans have only been traditionally granted against a title deed and not shares, she believed that, in view of shrinking affordability, a closer evaluation by the banks of risks on loans in share block sales was long overdue. During her real estate career she has never witnessed any bank placed in undue risk in a share block purchase. If risks were still perceived by a bank such endangerment could be offset through compulsory insurance on the buyer’s behalf.

Paul Cormack of Cor-pro and Magda Barnard of RE/MAX Address Berea claim sales of apartments have slowed since the implementation of the NCA. At least three Cor-pro sales have fallen through as a result of credit refusal. Cormack expects the effect of the act to negatively overspill onto selling prices, forecasting them to move sideways, possibly for up to a year. Not necessarily a bad thing, in his view, after the price surges recorded in the receding boom.

Barnard, who enjoyed good success with share block sales before the NCA, has not made any new sales since the last lender withdrew its support for share block.

Even before the new legislation share block units were selling at prices of between 10 to 20 percent lower than similar sectional title units. Barnard says a 2,5 bedroom share block unit selling at around R750 000 could command a price as high as R960 000 if sold as a sectional title unit.

Both Cormack and Barnard agree that the generally lower selling price of share block units, because of their inability to attract a home loan and therefore restricted to a much smaller net of buyers than sectional title, makes these units one of the better buys in the current market.

The three agree that the only way for share block owners the true market value of their homes is for them to open a sectional title register, particularly if they want to overcome the current impasse on granting home loans.

Resistance to convert to sectional title in the past has often been based on the recourse allowed shareholders in share block schemes to vet and even decline potential buyers, which is not allowed in sectional title blocks. But Deubler points out, in terms of the constitution, any rulings handed down now by existing shareholders must be in full compliance with the national charter.

In her opinion, and this is further reinforced by share block sales now attracting the same transfer fees as sectional title sales, there is no benefit for share black owners to maintain their status quo. “Even if they do open a sectional title register they can still have the option to sell by the share block method.”

For shareblock schemes to open a sectional title register the support of all shareholders is a pre-requisite. Cormack says such conversions involve surveying costs of between R15 000 to R20 000 and legal costs in opening the register, which are sometimes offered free providing a resolution is passed by the shareholders guaranteeing first transfers will be made by that same law firm.
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