Three interest rate cuts since December have so far failed to have any real impact on the residential property market, says Ivan Neethling, Chairman of the Western Cape branch of the Institute of South African Estate Agents.

The reason for this, he says, is still the banks’ much criticised reluctance to engage with the bond market as expected of them — and as promised, at least by some.

Neethling said that he had come away from a recent meeting with three major banks convinced that they are finding reasons not to invest in the bond market rather than looking for reliable bond applicants.

Banks fear impact from global crisis

The reason for this, he said, is that the South African banks appear to fear further repercussions from the global credit crisis and continued job losses (up to 400 000 before the year end).

"The banks give the impression of believing that the global economic problems will impact on South Africa for a further 18 to 24 months before we get real relief; a view which I see as unrealistically pessimistic," said Neethling. "Yes, we have to acknowledge that South Africa is not fully insulated from the world’s financial problems and the direst effects of these are only now being felt. However, the current bond rejection rate is in the view of almost all estate agents unjustified."

Unless there is a marked change in the banks’ attitude, said Neethling, every type of property company will have to within the next few months readjust their expenditure and cut back further on staff, advertising, marketing and other overheads.

Severe, unexpected cuts

"Already in the bond origination and conveyancing sectors we have seen really severe cuts that no one would have expected a year ago."

Asked how the banks plan to survive if they cut back strongly on bond lending, Neethling said that his impression is that a great deal of reliance is being placed on the spin-offs generated by the government’s infrastructural development programme — but this, he said, can only partially compensate for a healthy bond loan business.

"In any case," he said, "there is a certain injustice in penalising the consumer at this point because it is his taxes that have funded much of the government’s spending programme from which in general only a select few are benefiting."

In the housing sector, said Neethling (repeating a message that he has given before), there is now great awareness of the National Credit Act criteria and this has had a noticeable effect on making loan applications far more conservative and more realistic than they have ever been before.

A self-regulating industry

"Very few bond applications today," he said, "come from chancers. The industry has become self-regulating. No one wants to waste time on a bond that is likely to be refused. Those applications that have been processed almost invariably have come from sound, reliable, credit-worthy people who should qualify for a bond — but all too often do not. This situation has simply got to change if the state has any intention of seeing the housing sector revive and of realising its dream of South Africans becoming a home-owning nation."

Is Neethling being unfair? Who do you think is to blame for the housing slump? Leave a comment below...

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