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

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

This year, almost half of the world's inhabitants will head to the polls to elect their new governments, including 8 of the world’s 10 most populous countries.

"In South Africa, we can expect our own election to put the property market into a temporary holding pattern, dragging on the subtle buyer’s market we have been experiencing" says Renier Kriek, Managing Director at Sentinel Homes.

While he advises owners to wait until the end of the year to consider selling their property, Kriek cautions buyers to not get caught up in election fears and miss out on real estate bargains.

The impact of sentiment
All market behaviours are driven by sentiment. South Africans face uncertainty around the outcome of the election and the likelihood that, for the first time in its history, the country will be led by a coalition government at the national level.

This creates negative sentiment that is also being fuelled by the heightened and increasingly populist rhetoric of competing political parties. And persistent factors, like the delay in interest rate cuts and a declining rand, only add to the doubt.

"While we were all hoping for a downturn in the rate cycle at SARB's May or July meeting, I now doubt anything will happen before September. The MPC remains hawkish and seem unlikely to move interest rates down before the US Federal Reserve has lowered their policy rate," says Kriek.

That's expected well after the election and these compounded concerns are pushing people to take a wait-and-see approach, including in the buying and selling of property.

A first for South Africa
All countries with a proportional representation electoral system eventually face a coalition government scenario. The likelihood of a national governing coalition is therefore a sign that our political system is maturing.

This will be South Africa's first coalition government at a national level and the norms associated with such a structure have never been firmly established among the political class or the voting population. While national coalitions are a sign of progress and maturity, it is likely to lead to a lot of short- to medium-term noise, that is likely to have a continuing and unpredictable impact on sentiment in all markets, including the property market.

The nearest we have to some agreement is the Multiparty Charter whose only purpose is to counter a national coalition between the ANC and EFF.

Countries like Belgium with older proportional representation systems have developed the advanced bureaucracy necessary to almost run the country on autopilot, even without a government. South Africa, however, still needs to find its footing in any coalition pacts and develop the necessary protocols among participants intent on promoting their own interests.

"This means things will probably be noisy and messy for some time after the election, as parties attempt to nail down the terms of their respective alliances," says Kriek.

What to expect from property
Currently, it's still a buyer's market for property and it definitely won't turn into a seller's market until after the election and a rate cut. Until then, we can expect that property price growth will remain low. Once the election outcome is known, and provided we have avoided worst-case scenarios, and the rate cut is at hand, we can expect pent-up demand for property to spill into the market and significantly increase demand.

In addition, weak economic growth means sellers who can afford to wait should indeed wait until spring or summer to see if they can fetch a good price for their property relative to the market. Winter is historically not a great time for selling homes anyway.

Despite the general modd brought on by politics and the interest rate cycle, the market in the Western Cape remains buoyant and there are signs of buyers returning in earnest to areas like southern Gauteng and areas eastof Pretoria.
The smart money of property investors also remains in the market, signalling that opportunities exist. Along with low property price growth, this means that astute buyers can still pick up bargains while others hesitate.
​
"If you want to buy, buy now and don't be put off by sentiment-driven hesitance that currently prevails in the market election sentiment," advises Kriek. “In the South African property property market, due to structural factors, what goes down must eventually come up.”
 
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

The local property market will see a resurgence in 2024 predicts Renier Kriek, Managing Director at Sentinel Homes.
 
"People have been held back from buying and selling property by various factors since before the COVID lockdown, but that is about to change for the better," he says.
 
Factors impacting the local property market
In South Africa, property buying and selling have dropped steadily since 2021. In 2023, market volume was about 5% lower than 2019.
 
The factors driving this decline include load shedding, the national logistical backlog, a stalling economy, runaway inflation, the rising cost of living, and a 475 basis point increase in the lending rate since the COVID lockdown ended.
 
However, people's life circumstances continue to change, suggesting pent up demand building below the surface.
 
The number of first time buyers – a solid indicator of market demand – has also decreased significantly, again implying that unsatisfied demand exists.
 
Outlook for 2024
Two main events signal that things are about to change.
 
First, economists agree that, as inflation slows in South Africa, SARB will likely reduce the interest rate at its May or July National Planning Commission meeting in line with the US Fed.
 
Second, the country will hold general elections this year, and probably be led for the first time by a coalition government at national level. While this might concern South Africans, it also promises to bring new energy to solving the nation's dilemmas.
 
Kriek believes both these events will turn out well and will provide a release for the evident demand for property. "Then, we'll see a dramatic increase in market activity," he says.
 
Several lesser trends are also worth watching.
 
Smart money in the market
Right now, there's a lot of smart money in the market – entities that buy properties to boost their portfolios, not their lifestyle.
 
Interest rates on mortgage loans have decreased significantly, partly because banks are competing for a shrinking market, but also because these investors are richer, have better credit records and present a much lower risk than the average buyer. They are also paying higher deposits up to 105 percent.
In the same vein, wealthy buyers from abroad are snapping up luxury properties in Cape Town above R20 million.
 
This trend is sure to continue into 2024 as that smart money looks to acquire more assets before the market turns.
 
Semigration
Semigration remains a major trend in 2024 and smaller towns will continue to be targeted for gentrification, no longer only in the popular Western Cape but across the country.
 
As more affluent buyers seek stock in these locations, incumbents will see their property value rocket.
 
This may not be the only incentive for them to sell, though. Increases in rates and the cost of living may become unaffordable for them, pressuring them to move elsewhere. But where will they go?
 
With more than 80 percent of all building plan approvals being in coastal areas currently, the answer is plain to see.
 
Co-buying
There is a marked increase in co-buying, that is, people buying a property together with someone other than their spouse. This includes friends, unmarried couples, investors and those with business intentions. About one in every four properties purchased is now co-bought.
 
This approach overcomes the gap between property prices and income, and is a way for younger people to enter the market while spreading risk between them.
 
Banks have also changed their policies to accommodate co-buying, with some allowing up to 12 individuals to join in the application.
 
Buy-to-let boom
The buy-to-let market is booming, especially in the Western Cape. One reason is that, due to insufficient stock and higher property prices at the coast, many semigrants rent while they shop around for an affordable property or while their new home is being built.
 
This growing demand provides a good incentive for buy-to-let landlords to invest in new homes and apartments, despite the high construction costs.
 
Almost 11% of all bond applications are currently investment purchases.
 
Smaller properties
Another continuing trend in 2024 will be smaller plots and smaller properties.
 
High construction costs make it very difficult to create new stock that competes with existing stock in the market.
 
So, both tenants and buyers will have to adapt to reduced living space unless they can afford to build their own at a premium.
 
Relief for homeowners
The number of buyers may be low but owners are also holding onto their properties for dear life, in the face of crippling interest rates.
 
Unfortunately, foreclosure may have forced some to sell. Yet, the predicted drop in interest rates promises relief to those who managed to stay afloat.
 
It could also mean an influx of buyers for anyone who desperately wants to unburden themselves of their property.
 
When will the change happen?
Kriek expects the dam to break in the coming winter. This is not a prime time for property sales, however, especially in the Western Cape. During this season, people tend to buy fewer properties or buy them at a reduced rate.
 
"With lower transaction volumes during the winter months, there is likely to be a slight buyer's market that will turn to a seller's market in spring," he says.

 
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