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

The single woman’s guide to buying their first home
Almost 60% of South African homes are owned or co-owned by women, and women are increasingly buying property without a spouse or partner.

“Many will be first-time buyers who are hesitant to commit because they feel they are unable to afford such an investment,” says Renier Kriek, Managing Director at Sentinel Homes.

As someone who deals with single or unmarried property seekers regularly, Kriek offers some good advice to help you find the best way to finance your purchase.

Rise of the female homeowner
As modern family dynamics change, one demographic indicates that more than 40% of South African children now live with their mother only. This is greater than the number residing with both parents or another related adult.

“Traditionally,it is believed that homeownership is one way to create the stable and secure setting that is conducive to childrearing. This cultural attitude, coupled with demographic changes, may explain the surge in women buyers,” says Kriek.

Yet, buying a property on a sole income can be daunting for anyone, regardless of gender, especially since property prices have risen faster than salaries over the past 70 years.

However, Kriek warns that once the practical results of the election have become clear and the long-anticipated interest rates cut has arrived, pent up demand will surely unleash a buying spree that sends property prices skyrocketing. Buying now, before the market rises, is probably preferable to buy now, especially for those buyers who must stand on their toes to buy a property in the first place, such as single men and women who only have the benefit of one income.

“With the current buyer’s market, it is the ideal time to invest in a home that’s still affordable,” he says.

Buying a home on a solo budget
To find the best property, you first need to decide how you will pay for it. Here are some great tips to consider:
Your primary concern is how much you can get together for your investment. This starts with an honest assessment of your financial position and credit record, since you will likely need to apply for a bond, which may require a substantial deposit.

Then, do your research to discover alternative financing solutions. For example, the government’s First Home Finance subsidy offers qualifying applicants free financing that can be combined with other housing products, like mortgage loans. The options are out there, you just need to find them.

However, don’t be tempted by shady loans that make getting into debt easy but whose crushing rates will eventually leave you penniless - and maybe even homeless.

Next, implement sensible lifestyle changes. Now is a good time to start paying off lesser debts to free up disposable income and improve your credit rating. Also ask yourself which expenses you’re willing to live without, like your Netflix subscription or weekend takeaways. It all adds up.

Ask your employer if they provide assistance with property purchases. For instance, some banks may offer certain staff home loans with low or no deposit, and some employers may offer formal or informal programs of assistance to those who wish to buy.

Most importantly, be aware that every property comes with initial and monthly costs, some obvious and some hidden. Upfront, you’ll face transfer and registration fees, and transfer duty. Then, there are the ongoing and adhoc costs, such municipal costs, sectional title levies and consumption costs. You are also responsible for home maintenance and repairs, and other infrequent expenses that don’t normally affect renters. Make sure you work these into your calculations.

Getting value from property
Now, consider the best type of property to buy. Most single people prefer a lock-up-and-go home, like a property in a sectional title complex. Currently, sectional titles make up more than half of the properties in the country due to their excellent value-for-money proposition.

For instance, they allow you to enjoy many of the benefits of a free-standing property, albeit in a communal setting. The cost of security, gardening, property maintenance, a swimming pool and entertainment areas, and more, is shared among owners, making these amenities affordable and accessible to each.

“Given the demand, this is also the easiest property to sell when your lifestyle needs change, again making it the best for a first-time owner,” says Kriek.

If your employer is open to you working remotely, or you can run your own business remotely, you may find better value in rural areas or the countryside. In such regions, your bond might be cheaper than your current rental, so keep an open mind. 

Also, determine if the property could somehow pay for itself. A granny flat or spare room that can be rented out for additional income certainly helps to ease bond repayments.

Lastly, buy with the end in mind. One day, you may want to sell your starter home for the highest price you can get. To ensure its value keeps pace with the market, look at the basics most buyers demand, such as its proximity to schools, shops, hospitals, daycare and similar amenities. Also, try not to buy property in declining areas – low prices may in fact be a value trap.

The rewards of due diligence
As a single woman, who may also be a mother, your first home might seem like a distant dream, but it could be more affordable than you think.

“As long as you are willing to do your homework, you might be surprised at what is possible and how soon you can have what you want,” 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
 

Everyone buying a home would like to know that they are getting good value for money. Buying a property that is good value for money is not easy but is achievable for those who are astute and are willing to be patient and remove as much emotion from the decision as possible.

The first important mindset shift is that buyers must not confuse value with price. “Just because you were able to negotiate a reduction in the asking price does not make it a bargain. The price likely was inflated to begin with, because there are many incentives favouring higher listing prices,” says Renier Kriek, Managing Director of Sentinel Homes.
​
True bargains have some distinguishing characteristics to look out for. 

This includes:

• Motivated sellers

Sellers who are amid life-changing circumstances such as divorce, have fallen behind on their mortgage payments or have tenants who they are unable to evict will be more likely accept a lower offer. Often, but not always, motivated sellers’ properties end up on auction. Bargain hunters may also visit dedicated online portals like MyRoof.co.za or find court notices for foreclosure or sheriff’s actions as a source for good value propositions.

• Fixer Uppers

The market tends to devalue properties by more than the cost it will require to fix them up. It is likely that a property with R200,000 worth of arrear maintenance will be in the market for R1 million, but once you have done all the maintenance the value of the property shoots up to R1.5 million. This means the value gained by the maintenance is often more than the cost of the maintenance itself.

• Large plots

The average size of plots has been decreasing over time. The trend in urban areas is to densify and this is encouraged by municipalities. In a city like Cape Town, it is now possible to build up to three dwellings on a single residential 1 zoned plot. One must always consider other issues such as rezoning and urban development rules and this may require consultation with a town-planning expert. If the size of the plot is larger than the average new development in the area, there is likely to be surplus value. Unless the property is marketed as a development opportunity, which likely signals that the price has already been inflated to account for the size aspect.

• Vacant properties

Generally, vacant houses and flats sell for less than the ones that are occupied. This is mainly because a small crack or a spot on a carpet is more visible, than properties that are inhabited.  If you are able to visualise the potential, it is a good buy. 

• Gentrification

This is where the character of an urban area is changed when, for instance, artists or young professionals start flocking to the area. More art galleries and coffee shops start opening. “This is a reliable indication that the area is gentrifying. If you move quick enough you will be able to find a bargain that will increase in value rather quickly compared to similarly priced properties in other areas,” says Kriek.

• Relative value

When entering the market, it is a good strategy to consider buying the smaller or cheaper property in a particular area. The barrier to entry for these properties is generally lower than for the rest of the area which means demand for them is higher. Higher demand translates into quicker price growth.

Home seekers on the lookout for a bargain must remain alive to illegal construction. “The risk associated with illegal building work is almost always not worth the discount on the price,” says Kriek. If there are any doubts about the structural integrity of a building, call in the professionals to do an inspection. The benefit of a qualified home inspector, especially to inexperienced buyers, cannot be overstated. Since kitchens and bathrooms are the most expensive parts of any residential properties carefully consider the conditions of these two areas.

More sage advice from Kriek is to avoid bargains close to open public spaces. These areas tend to devalue property if they are not well maintained by local authorities. 

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
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Overregulation of the housing market in South Africa is discouraging the private sector from investing in formal low-cost housing projects.
 
This is according to Renier Kriek, Managing Director at Sentinel Homes. "With government resources being limited and corruption widespread, it is imperative that private capital is enticed to join the constitutional project of granting all South Africans access to adequate housing," he says.
 
It is apparent that, for all the government's initiatives, programmes and subsidies to provide RDP housing, a vast number of underprivileged citizens still reside in informal settlements.
 
However, while tax breaks exist for new or improved rental housing, with added incentives for low-cost housing, the rest of the legal and policy landscape is much less persuasive to investors.
 
Mortgage risk
For one, housing consumers who earn less than R15,000.00 per month make up less than 0.6 percent in value and 1.7 percent in number of accounts granted mortgages in Q1 2023, matching a decade long trend. This is because banks tend to avoid these riskier applicants, even when supported by the government's Finance-Linked Subsidy Programme (FLISP).
 
The reason is simple: the excessively long and inefficient foreclosure process in South Africa seems bent on ensuring losses for both banks and defaulting consumers.
 
In addition, judges are often overly sympathetic to defaulting debtors per case, not considering the overall negative effect this has on banks' attitude towards financing the larger underprivileged community.
 
"However, if the cost of terminating defaulting mortgages were low, banks would be less risk averse, thereby increasing the likelihood of access by this segment," says Kriek.
 
Rental risk
Similar to mortgages, the time and financial costs of eviction are too high, and the law and courts too lenient on defaulting renters.
 
With the supply of formal housing being so low, the cost of eviction should also be low and the rights of a large number of potential tenants should weigh more heavily than those of a few non-paying tenants.
 
"If the risk was low, more landlords would emerge to invest in satisfying the obvious demand for affordable accommodation," says Kriek.
 
Development rules
Lastly, housing development in South Africa is inhibited by long or delayed regulatory processes, as well as building standards designed around first-world circumstances. This is further exacerbated by municipal inefficiency, which affects delivery of essential services like roads, water, power and sanitation.
 
Authorities have also suddenly become deeply concerned with the lack of affordable housing. Their response has been to request that developers include affordable housing units in new developments, even in areas not marked for such housing.
 
"While laudable at first glance, this does not increase the availability of affordable housing as beneficiaries will often flip the unit at market price to realise a profit," says Kriek.
 
The positive intent is therefore negated and leaves the market worse off.
 
Change Is Needed
Mortgage risk, rental risk and misguided development rules, taken together, disincentivise the development of low-cost housing in favour of larger, pricier units.
 
"Given the state of the country’s housing market, urgent legal reforms and business-friendly policies are needed to ensure all South Africans gain access to constitutionally mandated housing," 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 Home

Homes farther out, and more reasonably priced. This is increasingly what South African property buyers are looking for. “There are multiple reasons contributing to this trend,” explains Renier Kriek, CEO of home financing company Sentinel Homes.  
 
"Rising interest rates and the resulting decline in transaction volume are significant factors.
The increased proportion of ‘motivated sellers,’ selling because they are in a rising costs squeeze, are now likely to stabilise price growth until the rate hiking cycle eases off or starts to reverse.” 
 
According to Kriek, the consequences of the Covid-19 pandemic are also still very visible. “Office vacancy rates have increased, resulting in consumers no longer being as motivated by office proximity when selecting homes. This means they can search for value in outlying areas. Many even semigrate to other parts of the country. We also expect to see a rising level of commercial to residential conversions in urban areas.
 
Semigration and its cousin convenience
Kriek names the current hottest markets and sites for real estate investment as the coastal regions from the West Coast to Cape Town and Mossel Bay.
 
“The Mother City remains very popular despite high prices and strained infrastructure,” he says. “This thanks to their loadshedding buffer due to the City’s generation projects and other electricity initiatives, as well as the city’s lifestyle benefits.”
 
He claims that the Garden Route and George Airport’s close proximity make this popular tourist destination just as convenient as Cape Town.
 
“But it must be highlighted that the affordability benefit there is quickly waning because this area has become a focus for immigrants from both inside and outside the Western Cape.”
 
Finally, the West Coast (north of Cape Town) is also seeing a rise in the real estate market, thanks to its charming tiny fishing villages and rural communities like Langebaan, St Helena Bay and Paternoster.
 
“Consumers who work from home are discovering the real value in pricing that was previously only influenced by variables connected to the regional fishing and farming industry. Due to external demand for property, it is now unbound. On the other hand, gentrification problems may result from this and increasingly poor access to housing for families in the bottom half of the income spectrum is a real threat.”
 
Kriek says those still buying property in the economic hub of Gauteng, are shying away from freehold properties, such as single houses on larger plots in unguarded neighborhoods. “They prefer estates and sectional schemes. This is likely a search for safety and services,” he elaborates.
 
 Those entering the Gauteng property market will likely find the best long-term investment to be inside a security estate or secured sectional title scheme. Owners of freehold properties in more traditional suburbs may consider cashing out and moving with the trend in the interest of their longer-term financial well-being.”
 
Challenges for First Time Buyers
Kriek says that first-time buyers - who make up a very large proportion of purchasers - are moving into the property market much later. This trend is continuing to intensify.
 
The lack of affordable housing supply and inefficient housing finance market in the affordable or gap housing market, specifically properties priced under R750 000, contributes significantly to this trend.
 
“The National government, through the Department of Human Settlements, unveiled significant updates to their Finance Linked Individual Subsidy Programme (FLISP), now called First Home Finance, with the aim to improve access to affordable and gap housing. The expanded policy is still in the nascent stage of implementation, however, and its effects are likely not to be evident in market trends until next year.”
 
Kriek adds that Sentinel Homes offers the first open-market alternative to mortgages. By expanding access to housing finance, it is serving those 5%-10% of housing consumers who lack housing finance, despite being creditworthy and having the necessary disposable income.
 
“Now is the time in the property market cycle to escape the rent trap and start meaningful steps toward long-term financial health. Homeownership is a significant part of that equation,” says Kriek.
 
“You are more likely to buy something you can really afford if you buy it in the current conditions. There is the added upside that prices for properties priced around the average can only really go one way from here – and that is 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