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
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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

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, [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