Non-affordability still a major concern
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“One out of the four major banks are active participants at present, but the others seem reluctant and their credit vetting processes are far too stringent, which effectively means we are selling one unit four times before a buyer receives a bond to buy and the deal is successful,” said Hassan.
What cannot be explained is why, after the bond originators have done a full credit assessment and assessed the risk, and found the buyer to be a suitable candidate, the banks then still decline so many of the bond applications on the grounds of non-affordability, he said.
“This is incredibly disappointing,” said Hassan, “as the need is huge. While the government is trying to encourage home ownership, the banks are still holding back and overcompensating for their foolhardy lending years ago. More financial institutions need to commit to lending the money needed to buy homes, as well as to property developers to be able to meet the ever growing need for affordable housing.”
The leaders in financing do need to broach funding more actively, with a stronger focus on the GAP segment, added Hassan, in which home loans are still not being granted in the way that they should.
The knock-on effect
The problem with the lack of finance, is the knock-on effect, said Hassan. Certain percentages of sales need to be reached in order to get the development finance from the banks and construction started, so if there are not enough sales the delivery date is postponed and so is the employment of those expecting to work on the site. While this is good practice in that the developer has peace of mind that the majority of the units are sold in his development, the delays are sometimes months longer than is acceptable which then causes buyers to give up on moving into that development and cancel the deal.
Buyers and investors alike want to see activity on the site before they have confidence in the project and while developers put as much of their own money as possible into their projects to purchase and rezone, and securing the rights over the property, there is a limit to what can be done until the necessary finance comes through from the banks, said Hassan.
“There is a lot of consideration that goes into the planning of any project,” said Hassan. “Apart from the costs, there is the aesthetic value, what impact it will have on the environment, and at times we have chosen to reduce the densities because of the impact it might have on the urban surroundings. The living space requirements and affordability of buyers is fundamental to the success of a project. It’s not entirely about the cash involved, but the visual and social impact the development has on the suburb as a whole.
Asrin show how feasible some areas can become with the right development
Asrin so far have had success in bringing developments to areas which have previously been perceived as having little or no value and work towards showing how feasible some areas can become if the right development is added to them. “The Nuutgevonden development, on the outskirts of Stellenbosch, for example, is currently growing in value of approximately 2 to 3% above the inflation rate, which is extremely good considering construction is not yet finished,” said Hassan. “The true value of a development is usually realised once fully complete, so the current growth bodes well for those who have bought in here,” he added. If this can be done more often and with easier access to serviced land, it would go a long way to alleviating the drastic shortage.
“If banks granted the finance needed by both end users (purchasers) and developers more readily, they would give buyers the opportunity to own a home, the developers a chance to take their projects forward and create employment opportunities, reduce the unemployment numbers and continue a positive economic cycle. We believe that, between the banks, government and private sector, there has to be some sort of cooperative interaction to continue to be able to contribute as it has in the past to SA’s GDP. The healthy R191bn contributed in 2012 by the property sector alone could be improved year by year if all the role-players worked together,” said Hassan.