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, rosa-mari@atthatpoint.co.za, 060 995 6277, www.atthatpoint.co.za For more information on Sentinel Homes please visit: Website: www.sentinelhomes.co.za Facebook: Sentinel Home
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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. 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. ENDS MEDIA CONTACT: Rosa-Mari Le Roux, rosa-mari@atthatpoint.co.za, 060 995 6277, www.atthatpoint.co.za For more information on Sentinel Homes please visit: Website: www.sentinelhomes.co.za Facebook: Sentinel Home |
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