Frequent short-term borrowing could be a black mark against you when applying for a home loan.
“The number of short-term loans you burn through may warn banks or other lenders that you’re having trouble managing your finances,” says Renier Kriek, Managing Director at disruptive home finance business, Sentinel Homes.

That can make them reluctant to fund your dream of owning your own property.

Easy debt
While all debt should be managed responsibly to maintain a good credit score, for many South Africans, short-term loans are becoming an addictive way to make ends meet. Or, to fund luxuries they can’t afford but refuse to live without.

It’s tantalisingly easy to get hooked as well - you don’t need to put up collateral to get one and you don’t have to explain what you’ll use the money for. Also, some like to think that if they fall behind on their repayments, they can simply submit themselves to a debt review.

Introduced by the National Credit Act, a debt review is a legal process for someone who is over-indebted to settle with their creditors by paying what they can afford. A registered debt counsellor will review their finances and help them create a repayment plan.

The hidden costs
Unfortunately, there’s no such thing as a free lunch. Short-term loans can carry much higher interest rates than other types of debt - up to 5% per month, which is around 6 times the current prime rate. “So, the more you borrow, the worse off you become financially and the more likely you are to default,” says Kriek.

That debt review “solution” you are being offered isn’t necessarily a safe bet either - because it will cut you off from any further credit provision for as long as it takes to remedy your past bad behaviour.

Even if you’re not a repeat offender, firms offering debt counselling will often assure you that your debts will be forgiven, the slate is wiped clean and all will be forgiven. “In the real world, lenders could deny your home loan application simply because you needed debt review in the first place,” says Kriek.

Alarm bells
Short-term or unsecured loans are not an evil to be avoided entirely. They’re actually good for the economy when used responsibly.

However, they’re also a red flag to home loan providers when they feature strongly in your financial history, even if you’re keeping up with repayments.

Credit providers use various risk models to identify patterns in our spending behaviour - good and bad. They know what financially responsible and irresponsible spending patterns look like.

“Frequent short-term loans - with or without defaulting - are a risky pattern that implies an individual does not manage debt well, and that is something a home loan provider does not want to make a long-term investment in,” says Kriek. “The ability to delay gratification is the underlying attribute that responsible users of credit have, but there is no easy way to quantify whether a particular applicant possesses that trait – the number, frequency and type of unsecured credit transactions is a useful proxy in that regard.”

Good debt
So, what is the right course of action, especially if you already have short-term loans?

First, understand that short-term loans have their place but are seldom necessary. Stop using them and make a plan to pay off the ones you already have. Then get to work on building an emergency fund of cash that can only be touched for true emergencies, so that you will not need unsecured debt in those cases.

Second, work on saving for luxuries such as holidays and large capital purchases. You will be paying monthly anyway, whether you take the credit or save, but in the saving scenario interest will be working in your favour rather than against you. Delaying the gratification of that large purchase is difficult, but no-one said adulting would be easy.

Finally, if there is no other option, opt for “good” debt as far as possible. Buy your clothes, furniture, appliances, groceries and other items using store credit if you absolutely cannot do without. You don’t have to buy things you don’t need to build a good credit score. Everyday items and normal household purchases are fine.

“Credit providers’ risk algorithms generally look favorably on consumers who start their credit journey with store debt because it fits the pattern of responsible spending, provided you pay your accounts on time, of course, and do not spend near or above your credit limit,” says Kriek.

Long-term planning
Eventually, most people end up before a home loan provider in the hope of buying a house they love. But lenders are profit makers and risk reducers, so it’s important to think like they do.

Are you a good investment? Will you repay your home loan on time and in full? The lender’s modern analytical systems - often powered now by artificial intelligence - evolved to answer questions like these and exist to protect their owner from risk.

“Short-term loans that literally fund your lifestyle can easily sway the algorithm against you,” says Kriek, “especially if you are funding luxuries or nice-to-haves from easy debt rather than developing the discipline of saving.”
 
ENDS

Recently, the South African Reserve Bank reduced the repo rate by 25 basis points but the real interest rate remains far too high to spur meaningful capital investment by South Africa’s private sector. While the news brings some welcome relief to property owners, it’s another disappointment for the country’s real economy.

This is according to Renier Kriek, Managing Director at Sentinel Homes. “The SARB has consistently preached that their policy bible contains only one chapter, titled ‘inflation targeting’, which requires sticking to within their 3–6% inflation target band and anchoring inflation expectations at the 4.5% midpoint,” he says.

“Their messaging has consistently and unfailingly pledged that their mandate is the only consideration that guides their decisions.”

False policy
Yet, inflation has remained low over an extended period, currently sitting at 2.8%, leaving the opportunity for a softening of monetary policy wide open. Why then has the SARB stubbornly refused to reduce the interest rate accordingly, even as inflation hovers at or below the bottom of their target band?

Despite preaching vague and opaque ‘risks to the upside’ to justify their hawkishness in recent years, it’s clear that the  SARB has been disingenuous – in short, they have been lying to us. That was made plain for the first time today, but it has long been evident there is a secret driver of their decisions.

“It was clear with the announcement that the SARB’s policy bible has contained a new chapter, which is their anticipated future mandate, and they have already been guided by that expanded gospel, despite the existence of the chapter having been secret and further despite the content of the chapter not having been agreed to with Treasury and other stakeholders,” says Kriek.

Why now?
The argument advanced by the Monetary Policy Committee, by way of Governor Kganyago’s statement and answers to questions during the press conference, is that the MPC wishes to deal a decisive blow to inflation in the long term, transforming the SA economy to a low(er) inflation economy.

This will also mean lower interest rates for longer in future, per the MPC’s reasoning, since lower inflation economies generally tend to have lower inflation rates.

“However, the question is why do we want to do this now?” says Kriek. “Moving to a lower inflation target will likely have long-term positive consequences for the SA economy, but it will also involve near-dated discomfort. Essentially, the MPC is promising short-term pain for long-term gain.”

“The SA economy is a very frail patient at the moment and keeping interest rates at current high levels in order to achieve longer-term outcomes is a risky gambit. We should at least be asking, and this is as much about political calculation as economic policy, whether we should not attempt monetary stimulus first, getting the economy out of its bandages, and attempt the MPC’s incisive reforms once the patient is back on its feet.”

Impact of delinquency
The property sector has shown signs of broad-based recovery, with price lines across all the metros trending upwards in Stats SA’s latest Residential Property Price Index.

The cumulative 75 bps cuts, with a further cut at today’s meeting, have already had the effect of bringing previously pent-up demand spilling into the residential property market. However, while these are green shoots, the market is still under significant strain.

According to National Credit Regulator statistics, home loan delinquency is up 35% in the last 3 years, signifying the tremendous pressure households are experiencing related to their finances.

“This sharp increase in delinquency will come home to roost soon, as a sudden influx of distressed stock in the market is likely to drive prices down in the face of relatively tepid demand,” says Kriek.

A small window of opportunity
Households seeking to enter the market should not delay any further. The MPC found that a neutral policy should be 25 bps lower than the new repo rate of 7.25%, meaning we can expect at least one more cut in the near future.

So, it is more likely than not that the upwards momentum evidenced by the aforementioned green shoots will be sustained and expanded as the market adjusts to lower rates.

The decision at the next meeting will be led by the MPC’s insistence on pre-emptive management of monetary policy through its anticipated new mandate, and so the CPI inflation reports from now until the next meeting in July 2025 will have to be watched closely.

“It seems that if inflation inches higher even slightly, the MPC’s overly hawkish instincts will rule decision-making at the next meeting, favouring keeping rates steady despite low employment and flaccid economic growth,” says Kriek.

ENDS

Nothing is certain except death and taxes, the saying goes. Property owners must plan for both if they want their home and other assets to pass smoothly to those surviving them.

“Structuring your estate smartly, or at least having a will in place, will spare those grieving your passing further hardship, both emotional and financial,” says Renier Kriek, Managing Director at Sentinel Homes.

Any decision a property holder makes in this regard should be guided by advice from a professionally qualified financial and estate advisor. However, Kriek offers a good overview.

Basic factors
When planning for death, property owners need to consider two main factors.

The first is how to structure their estate so they don’t directly own anything when they die. This is usually only appropriate for those with large estates and minor dependents, or businesspeople who risk having their assets attached to repay creditors, but may not be the best tax planning advice for most consumers.

The second concern is their marital status. Are they single, married in community of property, or married out of community of property either with or without accrual?

“Each marriage model will affect the distribution of an estate differently,” says Kriek.

Make a will
Without a will, intestate rules apply to the deceased estate, as prescribed by the Intestate Succession Act 81 of 1987.

These rules determine which surviving relatives will inherit what portion of the estate, from the surviving spouse and descendents down to distant blood relatives.

The Act’s complex requirements could result in, for example, a spouse losing their family home to ensure they and each child receives an equal inheritance.

So, for anyone having assets such as homes or other fixed property and especially those property owners who have dependents, it is always best to have a will professionally drawn up to make sure assets will be distributed in a manner desired by the property owner.

“Again, the marriage model will affect how the will should be structured,” says Kriek. “Estate planning with a licensed and regulated professional is also likely to include investments and insurance, proper planning of which remain essential.”

Leverage trusts and companies
The beginning of the article mentioned not owning property at death, which is a desired outcome for some consumers due to tax, risk or other reasons. Avoiding direct property ownership while still enjoying the benefit of owning property can be accomplished through the use of a trust or company.

However, the cost of these vehicles makes them best suited to more affluent people who have larger estates and minor dependents, or entrepreneurs.

If property is transferred to or bought through one of these entities, the entity owns the asset. So, dying is of no consequence, if one’s dependents are the ultimate beneficial owners of the entity, such as through being beneficiaries of a trust.

The property held by a trust or company rather than in a person’s own name will not be subject to estate tax or capital gains tax at death, and typically cannot be attached by the deceased’s creditors. Only income that is earned through that property is taxed at a rate prescribed for the specific type of entity in addition to capital gains tax if the entity elects to sell the property concerned.

“Which structure is best suited to an individual’s needs must be determined with the help of a trusted estate planner or financial manager,” says Kriek. “Do not assume that the more complicated structure, using entities such as trusts and companies, is the “better” and therefore most appropriate one.”

Address affordability
Unfortunately, structuring cannot save a property that surviving family members are unable to afford, whether it is bond repayments, rates or levies, trust administration fees, corporate accounting fees, or other expenses. This could happen if a surviving spouse does not work and cannot raise the required finances to settle existing debt against the family home or other property.

An estate might be able to cover its own costs, for example, where income is derived from rental properties or the entity receives cash bequests from the deceased person. Otherwise, a will, trust or company should be backed by some form of insurance that ensures funds are available after the owner’s death.

“By following this rough guide and using a properly qualified and licensed financial planner, you will allow your loved ones to continue enjoying the life you worked so hard to provide them with,” says Kriek.

ENDS


MEDIA CONTACT: Rosa-Mari Le Roux, [email protected], 060 995 6277, www.atthatpoint.co.za 
For more information on Sentinel Homes please visit:
Website: www.sentinelhomes.co.za
Facebook: Sentinel Homes

Competing precedents, including a recent court case involving a home buyer who got cold feet, wanted to walk away from the deal but couldn’t, have sparked discussions in South Africa’s property law circles. The judge ruled in favor of the seller, because both parties had signed a contract that became binding as soon as the buyer’s credit provider issued its “approval in principle”.
 
“Some people misinterpreted the ruling, or disagree with it - saying it wasn’t fair,” says Renier Kriek, MD of Sentinel Homes. Yet the judgement followed centuries of contract law precedent by focusing only on the following question: At what stage did the purchase agreement become binding, before or after the property finance had been accepted by the buyer? 
 
“Obtaining finance is a process, unlike a turning on a light switch, it’s not instant and even positive results arrive piecemeal,” says Kriek. “When you sign an offer to purchase a property and require a home loan, there’s usually a condition that your loan must be approved before a certain date. This is called “suspensive condition” – meaning that only once this condition is fulfilled, the contract will become final and binding.  
 
“Buyers and sellers need to understand the suspensive condition in their contract, especially as they generally have competing interests in terms of what stage the deal should become final,” he says. “It’s therefore important to phrase your contract without ambiguity, so it’s not open to misinterpretation.”
 
Real-life consequences
Contract law may sound academic, but it has serious, real-life consequences. Since nobody wants to lose their deposit, Kriek urges buyers to fully grasp the financing process: When a home loan provider assesses your application to buy a house, and is satisfied lending you the money, it will first issue an approval in principle (AIP).
 
Then it conducts a valuation, before eventually issuing a prescribed document called pre-agreement statement and quotation. According to the NCA, the buyer has five days to accept the pre-agreement statement and quotation, which then becomes a final offer of finance.
 
“From the seller’s perspective, it would be best if the agreement of sale would likely contain a clause stating that the contract becomes binding as soon as the home loan provider issues the AIP,” says Kriek.
 
“From the buyer’s perspective, however, this clause poses a risk: it means you’re bound to the sales agreement, the sale is final, and your deposit could be on the line, even before you have agreed to the interest rate and other finance conditions suggested by the home loan provider.”
 
Ideally, he advises buyers to ensure the sale is only binding once:
a) the bank has issued the pre-agreement statement and quotation, and
b) you have accepted it. “This means you can only lose your deposit or be forced to buy the property once you have agreed to the terms of the credit proposed to you.” 
 
Check the nitty-gritty
Also watch out for home loan approvals that require the submission of approved building plans. As a rule, your offer to purchase should require the seller to do so.
 
But if this clause is missing, the seller won’t be obliged to provide the building plans, even if your home loan provider requires these. This makes you as the buyer responsible for obtaining the plans. It’s not only time-consuming but if plans can’t be approved, due to unauthorised building works, your deposit may once again be at risk.
 
This also applies to any other conditions your home loan provider may have. You have to ensure that these conditions are also in the sale agreement, so that the two documents tie into each other.
 
For these reasons, Kriek urges buyers to get legal advice before signing their offer to purchase. Don’t rely only on the property practitioner or others linked to the seller No-one should take a high cost and high liability decision like buying a home without expert legal and other professional advice, such as from a registered property practitioner and bond originator.
 
Ultimately, understanding the nitty-gritty of your contract should help you avoid financial losses and enjoy a smoother property transfer.  
 
ENDS

 
MEDIA CONTACT: Rosa-Mari Le Roux, [email protected], 060 995 6277, www.atthatpoint.co.za 
 
For more information on Sentinel Homes please visit:
Website: www.sentinelhomes.co.za
Facebook: Sentinel Homes
​

South Africa has a housing supply backlog of at least 2.2 million units, with a significant shortage in the affordable housing or “gap market”, according to a recent study by the Centre for Affordable Housing Finance (CAHF).

The gap housing market is generally considered to be households earning too much to qualify for Reconstruction and Development Programme (RDP) housing but too little to obtain traditional bank-financed homes in the open market.

Renier Kriek, MD at Sentinel Homes, says 40% of consumers fall into the RDP housing category (household incomes below R3 500 per month) and the wealthiest 30% of households are well-served by the open housing market.

Massive demand
The gap market is the middle 30% of consumers where the supply of housing stock is extremely low and even declining despite massive demand. Kriek argues that a market design error is to blame for this high demand going unmet. Adverse market design disincentivises the holders of capital to invest in affordable housing.

The biggest hurdle relates to the unnecessary prolix, cumbersome, and expensive processes that are associated with evictions and foreclosures. The cost of resetting the transaction (evict or foreclose) is prohibitive in South Africa and does not match market circumstances.

South Africa should adjust their regulatory environment to favour private sector investment and the expansion of supply. 

“We need to reduce the transaction cost for the holders of capital to take their chances on consumers who are not acceptable risks in the unduly high tenure security environment. In this way, some people will move into the formal housing market and fall out again, and perhaps more than once in their lifetime. If we go through enough of these cycles eventually everyone will be housed.”

Kriek admits that this solution may sound slightly callous and counterintuitive to the casual listener.

“The alternative, retaining our restrictive policy environment, is even more callous and is currently barring people from ever getting the opportunity to enter the formal housing market. What use is being born free if you will never realise that constitutionally mandated right of access to adequate housing?”

Unintended consequences
Another prevalent and reasonably fixable market design problem relates to government subsidies. The Department of Human Settlements has been offering the First Home Finance (FHF) subsidy, previously called FliSP to households in the gap housing market.

It aims to subsidize affordable first-time home-ownership opportunities for households with income from R3 501 up to R22 000 per month. It is an inverse means-tested subsidy, meaning that the cash grant is lower the higher the household income becomes.

“Millions of rands earmarked for this subsidy have remained unclaimed in the past and continue to remain unclaimed. This is not because people do not know about the incentive or do not desire it. The first challenge is the relative scarcity of gap housing stock, which is driven by poor demand due to incentives that are adverse to the deployment of capital in this segment, whether by landlords or home loan providers.”

Kriek argues that the subsidy design has unintended consequences resulting in market participants, such as estate agents, being unwilling to sell to subsidy recipients. “Due to overzealous fraud prevention measures and perhaps also an unwillingness to integrate into the existing market infrastructure, government has traditionally insisted that the registered title deed contains the name of the subsidy recipient before they release the subsidy amount.”

This means that the subsidy portion is usually received months after the transfer, unlike all other funds in a property transaction which are secured by third party payment functionaries such as banks or attorneys.

This makes each property transfer involving a subsidy inordinately complex, and everyone involved prefers doing the same transaction with a consumer who does not rely on a subsidy. Usually, it’s the estate agent waiting for the subsidy payment to receive their commission, and that is simply an unacceptable adverse incentive if government’s intention is to have the subsidy reach its intended recipients.”

Though recent developments seem to favour fixing the market design shortcomings of FHF, the administration of the subsidy remains positively byzantine. There is a national subsidy authority, that can approve and pay subsidies, and a separate subsidy authority for each of the provinces, each with a unique set of rules and procedures and a separate application procedure.

This is a quagmire for lower income consumers to navigate successfully, especially where those who rely on subsidies are already viewed negatively by market intermediaries such as estate agents and transferring attorneys.

It will take significant political capital to implement market design solutions that can solve the problems facing the gap housing market. If we do nothing it may even get worse, says Kriek, who fears that the current government may not have the ability to adequately diagnose the problem, and much less the political will to affect the necessary policy and regulatory changes.

However, if it could succeed, the job creation that could follow finding solutions to the problem of housing supply could go a long way toward achieving the job creation efforts of government recently articulated in the President’s State of the Nation address to parliament.

ENDS
 
MEDIA CONTACT: Rosa-Mari Le Roux, [email protected], 060 995 6277, www.atthatpoint.co.za 
For more information on Sentinel Homes please visit:
Website: www.sentinelhomes.co.za

It's not easy to get a mortgage on your dream home if you're not employed full time and earning a fixed salary. Freelancers, those working on commission or sourcing their income from gigs, and many other independent earners, often find themselves facing a brick wall when applying for a home loan from banks.

However, more people than ever are becoming self-employed in these fields and are seeking easier alternatives to a traditional mortgage bond. This is according to Renier Kriek, Managing Director at Sentinel Homes, which specialises in financing home ownership through instalment sale agreements.

How does it work?
"Instalment sale agreements are steadily becoming popular not just among those that do not qualify for a bond but also many who do not fit the salaried mould for which the mortgage model was specifically developed," says Kriek.

An instalment sale makes acquiring a home similar to buying a vehicle on hire purchase. In Sentinel's case, the company finances the purchase and the buyer repays the value of the property in monthly instalments.

Although the company holds the title deed, the buyer enjoys all the rights and responsibilities of ownership during the period of the contract. Once the purchase price is repaid in full, total ownership is transferred to the buyer.

"On the surface, there is little difference between buying with a bond or via an instalment sale," says Kriek. “The only practical difference is the procedure followed when the buyers do not pay their instalment, but even in that case, an instalment sale is to their advantage.”

However, an instalment sale agreement offers several advantages to this class of homeowner.

Improved affordability
Because a freelancer or a self-employed person’s income may vary from month to month, the bank will only consider a portion of their earnings. So, even if they qualify for a home loan, they will likely have to settle for a cheaper property or fund any shortfall on the purchase price themselves.

Through an instalment sale, up to 100% of their income is assessed. “This gives the purchaser more freedom to choose a property they really want,” says Kriek.

Improved credit score
An instalment sale allows a buyer to acquire a valuable asset sooner and improve their credit score in the process. As the property’s value increases and their financial position grows over time, they may become a more attractive borrower. And they do not risk being caught in a rent trap while the values of homes continue to increase.

"Many of our clients have been granted bonds on the basis of their instalment payment history and were able to settle our instalment agreement early from bond refinance," says Kriek. “You can never get on the property ladder soon enough.”

Lower default risk
When a borrower defaults on their mortgage, they face losing their property through a sheriff’s auction, having adverse judgements against them, and being blacklisted for 5 years or more. This impedes their ability to acquire another property and obtain any credit, and may even limit employment opportunities.

However, with an instalment sale agreement, they have more options, including negotiating their position and, ultimately, selling the property to pay off their debt. "Even then, they retain a clean record and we have assisted clients that eventually recovered from such a position to buy another property," says Kriek.

Protected by law
As with a mortgage, the contract is governed by the very comprehensive National Credit Act. Another law, the Alienation of Land Act, also applies, ensuring the rights of the parties to the agreement are fully protected. Instalment sales are also registered against the title deed of the property.

A growing market
As more people start to freelance or work in other independent fields with irregular income, owning a home through an instalment sale agreement promises a logical alternative to mortgage bonds.

"It is apparent that an instalment sale agreement offers better advantages, more protection and greater flexibility to those who dream of owning a home without sacrificing their financial independence," says Kriek. “The offering is available via mainstream intermediaries, so be sure to ask your bond originator or estate agent about this currently lesser-known financing option.”
ENDS

MEDIA CONTACT: Rosa-Mari Le Roux, [email protected], 060 995 6277, www.atthatpoint.co.za 
For more information on Sentinel Homes please visit:
Website: www.sentinelhomes.co.za
Facebook: Sentinel Homes

Human Settlements Minister Mmamoloko Kubayi recently came under fire for her comments on “discriminatory practices” in the banking sector’s home loan application process.

“There’s a massive housing backlog in South Africa and yet the officials tasked with solving the problem are too busy race-baiting to do much about it,” says Renier Kriek, Managing Director of Sentinel Homes.

Much has been reported on how the Minister’s statistics, presented at the briefing, do not match her conclusions.

The Minister’s plan to change the law, forcing banks to explain why they rejected a loan to any previously disadvantaged person, sidesteps the real issues in both housing supply and demand, and therefore any meaningful solution.

Credit providers are profit-driven, not racially motivated
Banks are profit-seeking enterprises that make money from awarding credit, not denying it. Because home loans are a major source of their income, it makes sense that they are incentivised to grant as many as possible.

“It is not only implausible, but also downright ridiculous to believe that there is some racially motivated cabal operating from back rooms at banks and credit providers for ends that are inimical to the profit-seeking motive of those businesses,” says Kriek.

Since every application is a potential source of revenue, no credit provider will turn someone away who has a good credit record and disposable income, regardless of their race, gender or disability.

“Apartheid placed ideology before profit but in our democratic economy, any enterprise that turns down good money over prejudice will soon go out of business or be exposed by whistleblowers from inside,” says Kriek.

The National Credit Act compels banks to reject risky applications
The only reasons for banks to reject a home loan application are because it would be bad for business or they are compelled to do so by the National Credit Act or other regulations.

The NCA clearly prohibits awarding credit to an applicant who does not have the financial means to repay it, is already over indebted, or would become over indebted because of the loan. It also already compels banks to furnish the dominant reason for the rejection to an applicant who requests it. The Minister’s proposal for disclosure introduces nothing new and given her team’s apparent statistical illiteracy has little chance of making any impact.

Banks that recklessly award credit put themselves at risk because the loan contract could easily be overturned by a court.

Changing the Act will only sow confusion and accomplish nothing except add to an already immense regulatory burden. But, it might also expose the government’s lack of initiative in solving the affordable housing backlog in any realistic way.

“Does the government plan to levy penalties on banks who reject loan applications in compliance with the law or common business sense?” asks Kriek. “Because any such penalties or additional compliance costs will become part of the cost of doing business, passed on to customers, and exacerbate the affordability problem.”

Real solutions
Real steps toward clearing SA’s apparent housing backlog are multifaceted, but require politically expensive interventions on both the supply and demand side of the market.

On the supply side, the government has been relatively successful with the RDP programme, which has housed millions of South Africans since its inception. However, the so-called gap housing market, which comprises the 30% or so of households who do not qualify for an RDP house and are also not wealthy enough to be meaningful participants in the open market, is being left behind.

Many of these households in the gap market segment continue to live in shacks or other informal arrangements despite being middle income households and have little future likelihood of entering the formal market. Home loans to these households makeup no more than 10% of home loans granted, but should in fact be at around 50% if the market were functioning efficiently.

Foreclosure and legislation
According to Kriek, the most impactful solution to the housing crisis would be to remove the constraints placed on the holders of private capital in the residential property market, especially in terms of foreclosure and eviction. As President Ramaphosa has rightly put it, the private sector has money that can be deployed to meet the demands of our country and should therefore be enlisted through proper incentives.

After World War 2, he explains by way of example, Northern Europe faced a severe housing shortage because of infrastructure destruction, which was solved in most of those countries by relaxing consumer safeguards.

Because it was easy for banks and developers to protect their interests, and cheap to take a chance on some otherwise doubtful consumers, they invested heavily in the provision of housing. This quickly rehoused the population. And once the population was housed, the governments gradually started reintroducing consumer safeguards.

In South Africa, even though housing remains a problem, foreclosure restrictions and courts that unduly and unnecessarily favour defaulting homeowners or tenants deter banks, developers and landlords from making substantial investments in housing. This limits supply, as can be seen from market statistics.

“We need to urgently review our current foreclosure and eviction legislation and procedures because, in the long run, it would unleash massive investment into the property market, resulting in a jobs boom in the construction industry, and ample housing for all,” says Kriek.

“With a Government of National Unity touting that the private sector is key to the project of regeneration and economic growth, ministers should leave the race-baiting to the populists and work with the private sector interests to make a non-racial South Africa that works for its inhabitants a reality at last,” he concludes. “There is more than enough money available in the world, it is simply a question of harnessing it properly.”
 
ENDS
 
MEDIA CONTACT: Stephné du Toit,[email protected], 084587 9933, www.atthatpoint.co.za 
For more information on Sentinel Homes please visit:
Website: www.sentinelhomes.co.za
Facebook: Sentinel Homes

Love springs eternal but all marriages end - often in divorce but definitely in death. It’s a sobering thought, especially if you’ve recently been down on one knee or held out your ring finger.

“If you own or intend to buy property for habitation, business or investment, you need to consider the implications before tying the knot,” says Renier Kriek, Managing Director at Sentinel Homes.

Let’s look at the different types of marriage and what you need to know to protect your assets once the fairytale ends.

In community of property
By law, without an antenuptial agreement, South Africans are automatically considered to be married in community of property.

Any properties you owned before marriage or acquired afterwards belong equally to you and your spouse. They can also be attached to pay off your spouse’s debt, and you can’t sell them or buy more without your partner’s consent.

At divorce, any properties and other assets are divided equally and on death, a surviving spouse may inherit them if they are bequeathed in the deceased spouse’s will. It also doesn’t matter who paid the bond - this form of marriage determines who gets what in the end. Who paid for the home or other asset is irrelevant. “I don’t know an attorney who would recommend this model of marriage to their clients,” says Kriek. “It’s impractical to have the parties bound at the waist as neither can act commercially without the other’s consent. In addition, it’s poor risk management because all the assets are exposed to either party’s actions.”

Out of community of property without accrual
Historically, the growth of antenuptial contracts threatened to leave financially inactive spouses with nothing at divorce. Therefore, by default, South African law imposes an accrual system on marriages out of community of property. For total financial independence, your antenuptial must explicitly state that accrual is excluded. This is called the “cold exclusion.”

If married by the cold exclusion, all the assets you acquired before and during marriage remain yours and cannot be attached to your spouse’s debts. You can also buy and sell property without their consent, and engage in commercial activity unfettered by the bonds of matrimony.

At divorce, you leave with all your assets and just have to worry about disposing of jointly purchased property. On death, the surviving partner gets only what was bequeathed to them. 

This model is ideal for couples who want to retain their financial freedom, grow their wealth independently, and protect their assets from each other’s creditors. Just remember that maintenance claims are potentially open to all spouses on the dissolution of the marriage, even if the parties chose the cold exclusion.

“For entrepreneurs and investors, it protects their business portfolio while sparing their partners the financial risks they willingly take on,” says Kriek.

Out of community of property with accrual
Without an accrual exclusion clause in your antenuptial agreement, the accrual system automatically applies.

Assets you owned before and those acquired after marrying remain yours alone, cannot be attached to pay creditors, and you are free to buy and sell property at will.

However, at divorce or death, a person can claim half of the difference between their estate and their spouse’s higher-valued estate. In effect, it’s “in community of property” at the end without all the restrictions during the marriage
“It ensures both come away equal, and allows for one spouse to take time off to rear the children, or for one to work to put the other one through school or university, even though they are married out of community of property. This is because, in the end, there will be a divvying up of assets. However, it could still mean losing the property you owned separately,” says Kriek, “because assets may be sold to cover the accrual payment due on the dissolution of the marriage.”

Get legal advice
Never assume there’s no such thing as a common-law spouse in South Africa. Even a life partner may gain ownership of your assets, without any formal ceremony or registration. If you are buying a property with a life partner or other romantic interest, please be sure to have a partnership agreement drawn up by an attorney.

“Do the smart thing and get advice from your attorney on the best way to proceed; a contract may seem unromantic when wedding bells are ringing but it will protect you both in the long run,” says Kriek. “It’s just the sensible thing to do.”

ENDS
 
MEDIA CONTACT: Stephné du Toit, [email protected], 084 587 9933, www.atthatpoint.co.za 
 
For more information on Sentinel Homes please visit:
Website: www.sentinelhomes.co.za
Facebook: Sentinel Homes

Whether you’re buying property for business or to live in, you’re going to pay taxes at various stages of ownership.
 
“Owners - especially first-time buyers - need to be aware of their tax obligations and plan their property investments accordingly,” says Renier Kriek, Managing Director at Sentinel Homes.
 
Unfortunately, tax is often overlooked, so here’s an overview of what you need to know.
 
When you buy
When you buy a property, you will either pay VAT or transfer duty, but never both.
 
VAT is charged when a VAT-registered business sells a property, typically as a new residential development. Transfer duty, on the other hand, is levied when buying an existing residential property from its owner.
 
Importantly, transfer duty cannot usually be financed through a home loan, so you’ll have to come up with the money yourself. On higher priced properties, transfer duty can run into the hundreds of thousands.
 
“With a new property, VAT is included in the purchase price, so it is already covered by your loan,” says Kriek. “For first-time buyers, a new property can be much easier on their pockets.”
 
It’s also important, when shopping for property, to keep in mind that new properties are cheaper at the same advertised price than their second-hand competitors, due to the impact of the transfer duty.
 
For as long as you own
Once you take ownership of your property, you’ll immediately start paying municipal taxes. Whereas transfer duty and VAT are paid over to SARS, municipal taxes are used to fund city services, infrastructure and salaries.
 
“When planning to buy, you should consider how this tax will impact your monthly cash flow,” says Kriek. “We have, startlingly, had several clients who were surprised to learn that they will receive a monthly tax bill on their new home. The municipal tax is in addition to consumption charges for water and electricity and expenses like levies payable to the body corporate or homeowners’ association.”
 
When you sell
If you sell your property, you’ll pay capital gains tax (CGT). This is where things get a bit complicated.
 
CGT is calculated on the difference between what you paid for a property and what you’re selling it for. Individuals are taxed on 40% of this profit at their marginal tax rate when it comes time to declare their annual income to SARS.
 
However, if this is your primary residence (i.e. your home), the first R2 million of your profit is tax free.
There are a few catches though. For example, perhaps you initially rented out the property but then moved in to live there permanently before selling it. In that case, the R2 million allowance must be divided proportionately between the period you rented it out and the period you lived there. And you won’t be able to claim that first portion as tax free.
 
Another instance is where you claimed a deduction for a part of the property used for business, such as a home office. You will also have to subtract this part from the allowance.
 
Trusts and companies, on the other hand, pay tax on 80% of their capital gains and don’t benefit from a primary residence allowance. This seems, on the face, to provide valuable incentives not to own your primary residence through an entity. However, the estate duty implication and the effect on the cost of administering your estate should also play into the consideration of the correct structure.
 
Secondary properties, such as a holiday home, also don’t benefit, even if you do reside there occasionally.
 
When you pass
When you die, you will have to pay estate duty on the value of your estate above R3.5 million, rendered unto SARS by your estate administrator.
 
Any property disposed of at this time will attract CGT, and the same exclusion allowance is applied to your primary residence.
 
If your estate cannot cover your debt or tax obligations, your property may be sold to raise the necessary cash.
 
There are several methods to protect your property against such a loss. You could take out extra life insurance to cover the tax liability. Or, you could sell your property to an estate planning vehicle, such as a trust or a company, at the earliest opportunity, in order to cap your eventual tax liability.
 
Although you’ll pay CGT on the profit from that sale, any future property value increases will be on the balance sheet of the entity, not your own, thereby escaping an otherwise increasing estate tax liability. And since trusts and companies don’t die, you can avoid CGT in perpetuity when you do - to the advantage of your beneficiaries, of course.
 
When you earn income
If you earn income from any source other than employment, you must pay provisional tax. This includes income from renting out your property.
 
Provisional tax requires that you estimate your non-employment earnings for the year and pay tax on half of those earnings at the end of August, with the balance due at the end of February in that tax year. When you declare your total annual income, any provisional tax paid during the year is deducted from your assessed tax.
 
“Just estimating what you’ll earn in the coming year can be stressful and calls for the services of a professional tax advisor or accountant,” says Kriek.
 
Starting out right
The sheer complexity of tax on property and the methods of managing that obligation cannot be covered fully in a single article.
 
For this reason, it is essential to carefully plan your property purchases around both financing and tax. “Especially for high value property investments, such as total property values exceeding R2 million, you definitely need to engage the services of estate management and tax planning professionals,” says Kriek.
 
ENDS

MEDIA CONTACT: Stephné du Toit, [email protected], 084 587 9933, www.atthatpoint.co.za
For more information on Sentinel Homes please visit:
Website: www.sentinelhomes.co.za
Facebook: Sentinel Homes

The significant decline in the number of people who can keep their mortgage accounts up to date clearly illustrates the level of financial distress consumers are currently experiencing.
 
Historically around 92% of all mortgage accounts were up to date, but it has been dropping quite dramatically in recent times. The latest available figure shows it is down to 88% in the last quarter of 2023. That means home loan accounts with arrears have increased by about 50% recently, and it happened in the relatively short time span of 18 months to December 2023.
 
Globally inflation has been quite stubborn and interest rates remain high as a result. In South Africa the repurchase rate (repo rate) of the South African Reserve Bank reached its highest level in 15 years, says Renier Kriek, managing director of Sentinel Homes. This means the prime rate, used to price home loans and other consumer debt like car loans and credit cards, is elevated.
 
High inflation, and the high interest rate response, has been caused by a confluence of factors including the hangover from previous quantitative easing, supply-chain bottlenecks during the Covid-19 pandemic, the Russia-Ukraine war and the recent conflict in the Middle East.
 
Despite earlier predictions that the high interest rate cycle could turn around in May this year it is now only expected next year due to high inflation proving stickier than anticipated.
 
“Being unable to afford your home loan instalment is not a position anyone wants to find themselves in. Steer your own boat rather than leaving it to the vagaries of the foreclosure process. Not taking control of the situation can be financially disastrous,” advises Kriek.
 
Prevention better than cure
He urges homeowners to come to an agreement with their home loan credit provider before they miss the first payment. Stick to the arrangement. Do not over-promise and under-deliver.
 
“If you couldn’t make an arrangement in advance of missing a payment, and you’ve already fallen into arrears, pay something toward the debt immediately. Just pay anything you can and keep on doing that as a launchpad for negotiations with your home financier.” Accounts that are receiving payments are less likely to face hand-over and foreclosure than accounts receiving no payments.
 
“Do not let unreasonable hope be the enemy of your future financial well-being,” he adds. If the cause of your financial distress is unlikely abate within a reasonable time, call it a day and list the property for sale with an estate agent. Be realistic and pro-active.
 
He recommends that distressed homeowners market their property before the home financier’s attorneys come knocking, ensuring a better return on the sale. “You will also avoid a slew of additional costs once the bank starts with the foreclosure process. These only serve to make your poorer, adding insult to injury.”
 
Some people, particularly men in Kriek’s experience, tend to be too proud to discuss financial matters with family and friends. Many families are caught by surprise when there is suddenly talk about foreclosure, having missed the opportunity to assist along the road. “Reach out to the people you love and trust, there may be a lifeline from someone who will understand your circumstances and can assess the situation with much higher fidelity than a remote credit provider.”
 
Forbearance before foreclosure
Credit providers may be willing to assist a distressed homeowner by offering a payment holiday or by granting an interest-only period. It may also be possible to spread any existing arrears over a few months ‘repayments or extending the term of loan.  This is especially true when the bar to payment is temporary, such as hospitalization or sudden retrenchment
 
It is also important for consumers not to fall prey to over-enthusiastic debt counsellors. Many unscrupulous operators in that industry market debt counselling as a cure for all debt related ills. Entering debt counselling may not, in fact, save your home, but may still have a potentially disastrous effect on your future finances. For instance, debt review stops you from taking any new debt for several years while the debt review is completed.
 
Kriek says there is a general misconception that home loans are “money-spinners” for home loan companies such as the banks. It only takes a couple of missed payments for home loan provider to be “under water” with a home loan. Do not labour under the misapprehension that you are doing the bank a favour by having a home loan with them – the home loan itself is not a very lucrative proposition.
 
Nevertheless, the fixed costs of originating new home loans are quite high. Banks, home loan or credit providers generally prefer to rehabilitate existing customers rather than terminating the agreement, foreclosing, and then having to originate new debt.
 
Take all opportunities to steer your own boat off the foreclosure rocks.  Your finances cannot afford to be shipwrecked there.
 
ENDS

 
MEDIA CONTACT: Rosa-Mari Le Roux, [email protected], 060 995 6277, www.atthatpoint.co.za 
 
For more information on Sentinel Homes please visit:
Website: www.sentinelhomes.co.za
Facebook: Sentinel Homes