Bester - "Banks, not sellers, are setting selling prices
The introduction of the National Credit Act (NCA), the global economic downturn and its impact on South Africa, and the demise of the 100 percent-plus home loan have spawned a new breed of buyer.
No longer do people queue for homes as they did during the boom years of 2004 and 2005, or are there confident, quick-decision makers of a year or two ago. Today’s buyers are wracked by caution, focussed intensely on price and limited access to home loan credit, says Mike Bester, CEO of Realty 1 International Property Group.
Further, he points out that buyers are no longer the final decision makers when it comes to setting the selling price.
“It’s the banks rather than buyers or sellers who are dictating selling prices today,” says Bester. “Reports from the market have it that more than 58% of all home loans in January this year were declined by the first bank to which they were submitted. Translated, that’s nearly six out of every ten buyers who were, initially at least, unable to make good their offers to purchase.”
He attributes this to an “extreme wariness of risk”, which has caused the banks to change their lending and loan-to-value (LTV) criteria. “Their stance today is to lend less than a property is worth, with the buyer making up the shortfall in the form of a deposit, which can be anywhere from 5% to 40%. That’s a totally different scenario from the halcyon days when 100 percent bonds plus costs were there for the picking.”
“Unlike our parents,” he adds, “we are no longer in the habit of saving for deposits. The result is that thousands of prospective buyers, especially in the lower and middle sectors, don’t have money to use for deposits even though they might qualify in all other ways. This is a major reason for the massive slowdown in real estate movement and the high number of vetoed applications.”
Risk circumspection by lenders has given rise to another new buyer trend, he continues: buyers are now undergoing complete financial risk analyses before being granted home loans. “The application process now extends well beyond a mortgage origination consultant taking the documents to the bank,” says Bester. “It’s about establishing creditworthiness on a scientific basis with a knowledgeable financial planner who will make sure that buyers know how to realistically manage their risk.”
That there are still buyers out there is incontrovertible, though. “Reports from our offices around the country show that buyer interest is present and even rising in some areas. At the moment, most buyers are those with equity from previous sales, those who can no longer sit on the fence waiting for the right time to buy, or those who qualify for sufficient credit.”
Though buyer volumes have naturally dropped as a result of the above constraints - ooba reports by more than 50% on average around the country - Bester says it’s not all bad news. “Price growth has become more realistic and the market therefore more sustainable after the runaway growth of the recent past. Also, there has been an exodus of agents from the market, which many viewed as hopelessly over-traded.”
For the market to continue to regain momentum, sellers need to accept that the number of able buyers has dropped by more as much as 50% in some areas, he points out. “At the moment, there is too much stock available for them to hold out for top prices. Either their properties are in line with the market or they are out of the running. Until the market improves, sales will be less about what properties are worth and more about what the banks are willing to lend to qualified and willing buyers.”