Bester challenges banks to address home loan crunch
South Africa’s real estate sector, though subject to some major challenges, is nevertheless better off than its US counterpart, which some experts predict is still to “hit bottom in 2009”, before going on to flounder for the best part of 2010.
Quoting from the recently released “Emerging Trends in Real Estate 2009” report by US-based Urban Land Institute (ULI) in conjunction with PricewaterhouseCoopers LLP, Mike Bester, CEO of Realty 1 International Property Group, said the United States looked set for an ongoing decline in property values, additional foreclosures and delinquencies, and a “limping economy that will continue to crimp property cash flows”.
“While our property market is less than vibrant at the moment, the road to recovery for us seems both less onerous and potentially quicker than that of the USA or even the UK, for that matter – provided the relevant parties heed calls to address certain imbalances and problems. Most pressing of all is the need for the financial institutions to find solutions to the present home loan crunch,” he warned.
Until the banks revised their “strangling mortgage lending criteria”, Bester said market activity would be artificially stimulated by cash-rich buyers chasing bargains. “This should not be allowed to become one of the defining trends of 2009 since it is doing an inordinate amount of damage to the property sector and undermining consumer confidence unnecessarily. The fact is that there are many thousands of prospective buyers out there who can comfortably afford their monthly home loan instalments but are being refused bonds because they don’t have significant deposits. Primary home ownership is vital to the stability of our country as well as personal wealth creation and while I’m not advocating high-risk lending, I see no justification for holding back on making mortgages more easily available to low-risk buyers.”
Among the other trends he expected to dominate the South African property scene during 2009 and into 2010 was the time it would take home buyers to realise meaningful capital gains on their properties.
“We’re going back to a more normal market trend of up to five years to build equity,” he said. “Though the days of over-night profits are past, however, property will retain its status as one of the best performing asset vehicles available anywhere. The general feeling after the MIPIM international real estate summit in Cannes last week, which was attended by about 18 000 delegates representing 80 countries, was that property throughout the world would remain a solid long-term investment asset.”
Also envisaging a renewal of interest in metropolitan centres, Bester believed this would be driven by investors and end-user buyers looking for best value for money with regard to bricks and mortar, as well as a means of alleviating transport costs.
Another trend likely to gather momentum was the off-loading of holiday homes and second properties, and at extremely competitive prices. He also foresaw interest in fixer-upper properties waning, saying that people no longer wanted to spend money on renovations on top of the costs of buying.
Depending on what stimuli were added to the market melting pot going forward, the average selling time for a property could go either way, he said further. (During the last quarter of 2008, FNB put the average time a property spent on the market before selling at 15 weeks and 3 days.)
Inevitably there would be an increase in repossessions but hopefully these would be kept to a minimum as a result of a degree of leniency and good advice from the banks, he continued.
Estate agents’ negotiating skills would be called into play more and more often, to bridge what sometimes appeared to be chasms between sellers and buyers. Agents could also expect to have to arrange repeat viewings of a property for the prospective buyer before he would finally commit pen to paper.
Better-than-average value growth was likely to be found on properties in coastal areas or near to strong economies, while the slowdown in new developments would probably continue into 2010 in most areas.
Finally, Bester said the next few months would see many serious buyers step out of the wings, driven to decision-making by personal circumstances or the threat that by waiting too long for prices to hit bottom, the market would turn and they would end up losing the advantage of being able to buy at greatly discounted prices.