If a bank has, say, 100 repossessed properties bringing in no rental income but then turns down 100 (or more) bond applications for this stock, it has quite obviously not improved its position in any way '“ yet this is what happens time and again in South Africa today, says Rob Lawrence, general manager of Rawson Finance, - with the result that the banks are taking a very long time to get rid of their repossessed properties and are eventually often selling some of them at ludicrously low prices.
Discussing this recently, Lawrence said that the time has surely come for the banks to take slightly more risk in awarding bonds on properties in possession, even if the applicants credit records are not squeaky clean.
'Supposing,' said Lawrence, 'on the 100 properties quoted in our example, they allowed 40 applicants to have bonds '“ of which, say, 20% defaulted in their payments within the first year '“ surely the bank is still in a better position than it was because it has now reduced its PIP stock by 20% at the relatively small cost of four or five unpaid monthly bond repayments.
'Those buying to occupy in the lower price brackets (R200 000 to R750 000), where much of the stock is, often have minimal disposable income: they find themselves forced to spend almost all their monthly income within the next 30 days,' said Lawrence.
However, he said, this does not necessarily indicate that they are reckless or careless spenders. In can simply reflect the fact that a family with two or three children and with a combined income of R10 000 to R15 000 is likely to struggle to come out financially.
'It can happen that the family will have to skip one or two credit payments on a retail store account or perhaps a car HP agreement. In the old days this would not have been too serious a matter provided they resumed payment later.
'Since the National Credit Act, however, a few missed credit payments automatically result in the borrower being classified as a poor credit risk. If the banks could learn to operate on a more discerning basis, evaluating the long term reliability of the applicant as evidenced by his job record and possibly testimonials from his work superiors and his bank manager, we could see 'stuck' housing once again disposed of because there is a huge demand for housing at affordable prices '“ in certain areas over 50% of families have their grown up children or others living with them '“ and the banks reducing their massive PIP stock.
A readiness to go this route, said Lawrence, is especially necessary now because much of the good repossessed stock has been disposed of and much of what is left will be harder to sell'
For further information contact Rob Lawrence on 021 658 7100 or email rob@rawsonfinance.co.za.
