Cash Flush Banks and Spring Good for the Property Market
South Africa's currently cash-flush banks have seemingly developed a bigger appetite for lending in the homes market than they have had for a long time.
So much so that they have relaxed their lending policy to the extent that homes priced at up to R5-million (previously the ceiling was R3million) can now be bought on a 100% bond!
I haven't seen that for many years. And it certainly bodes well for sentiment in the homes market.
It comes at a time when many cash-stretched South African homeowners have been selling their properties and downsizing because their bonds are no longer affordable in the prevailing economic downturn and uncertainty.
Cash Flush Banks
The trend has seemingly been that any money that remains after settling the bond is simply left in the bank - not only because it is safer in the prevailing uncertain times, but also because there are currently no adequately attractive alternate investment opportunities on offer.
This has made the banks even more cash flush.
Johannesburg, in particular, offers good value right now. Its current home prices are at the lowest level that I have seen in my 35 years of residential property marketing in its higher end suburbs.
The growth in home mortgage finance is currently outpacing the growth in house prices for the first time since 2011. That is a really positive signal and an uptick in house prices usually follows. And it underlines the fact that home loans are still, and will remain, secure banking - not least because, unlike personal loans, they are backed by a very solid asset.
Relaxed Lending Policy
Another healthy indicator is that there is now more competition among the banks in attracting home loan customers as more new banks enter the market. In the process, they have been relaxing their lending policy somewhat.
Furthermore, the conversion ratios of the banks are now at a level of 60%-plus - compared with just 26% in 2010. That, too, bodes well for market sentiment.
Looking ahead to when confidence starts to improve, and when the economy begins to show clear signs of renewed growth - albeit perhaps slow to start with - the money that the banks had been sitting on will start to flow back into the then hugely undervalued property market.
It is at that point that the homes sector will come to life and almost certainly rebound quickly.
Author: Ronald Ennik