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Negotiating lockdown’s knock-on effects

WORDS: HELÉNE MEISSENHEIMER :: PHOTOS: SUPPLIED

The real estate sector was particularly hard hit during the lockdown because most estate agents were unable to earn an income as property transfers were halted by the closure of the deeds offices. Property sales, already down because of the recession, dropped even further as the economy ground to a halt. Buyers were also prohibited from physically viewing the properties they wanted to buy, which added to the frustration of all parties involved. However, thanks to prior advances in property technology, estate agents were able to conclude successful sales, many of them pending physical viewings. According to Berry Everitt, CEO of Chas Everitt International property group, for estate agents who were equipped with the right technology and knowledge to easily switch to remote facilitation of home sales and rentals, it made all the difference. Personal contact with buyers and sellers was always an integral part of the real estate business but social distancing forced a more tech-assisted and virtual approach.

Numerous estate agencies now market their listed properties with virtual property tours available online. “I think technology such as Zoom and Facebook Watch will remain post-lockdown and create many efficiencies,” says Adrian Goslett, regional director and CEO of RE/MAX of Southern Africa. Last month, property support structures reopened while real estate agencies waited in the wings. From June 1 all estate agents started operating subject to a strict protocol of health and safety regulations. According to Linda Erasmus, CEO of Fine & Country Sub-Saharan Africa, most estate agencies were ready to open their offices with the correct procedures in place as under lockdown Level 3. “Clients sign the health security forms before they attend any viewings and sellers have a set of rules to follow. The crucial activities, however, can be concluded and although the process is burdensome, it can be managed and is welcomed by the real estate sector,” she says.

Win-win for buyers

The latest rate cut on May 21 brought the interest rate to the lowest it has been in almost five decades. Combine that with the transfer costs waive for properties of up to R1m, and buying your first home is now an attractive proposition. “The interest rate is at a record low, stock levels are up and prices are under pressure. It is the ‘perfect storm’ for first-time buyers especially, who can take advantage of the environment and the transfer-duty savings,” says Seeff Property Group chairman Samuel Seeff. Craig Tappan, national business development manager at Mortgage Max, adds that recent rate cuts may make it more affordable to buy than to rent – another factor that could entice first-time buyers into the market.

Seeff agrees that affordability has improved drastically. “If you had purchased a R1m property at 10%, your gross monthly income requirement would have been about R33,000 per month. Now it would have reduced by more than R5,000,” he says. “That’s a significant benefit for buyers taking advantage of the interest savings and transfer duty exemption.” According to Seeff, market conditions are especially favourable for the low- to mid-market range up to R1.5m (and even up to R3m in some areas), where the company has seen the bulk of activity. “Buyers who are able to buy now have more property to choose from as stock levels are higher,” Seeff says.

“The interest rate is at a record low, stock levels are up and prices are under pressure. It is the ‘perfect storm’ for first-time buyers” Samuel Seeff, chairman, Seeff Property Group

Sell or wait?

There is no blanket answer to this question as it all depends on your reasons for selling. Goslett says homeowners who want to sell and buy a new home have to keep in mind that waiting for the economy to recover so that they can sell for a higher price will also mean they will be buying in a restored economy with higher house prices. There is also the risk that interest rates will rise then, impacting affordability. Everitt’s advice to sellers is not to hold back or delist at this stage but to conclude a sale as soon as possible even if they have to lower their asking price somewhat. “Those planning to upgrade will find that the price of their new home is also likely to be reduced – and by a far greater amount than what they may ‘lose’ on the sale of their existing home,” he says.

As for second investment properties, Goslett says sellers should consider affordability. “If house prices do deteriorate and you struggle to balance the holding costs, you may be forced to sell and find yourself in a worse position than if you sold earlier.” According to Erasmus, smart investors would hold on to their property investments at the moment, if possible. “Do your homework – you need to be informed to maximise profit when buying or selling,” she says.

Relief packages

During the lockdown many homeowners were faced with a drop in income or even no income at all, so a variety of relief packages were made available by the country’s major banks. FNB offered homeowners one of two solutions, says Hayden Giger, growth head of FNB Private Bank Lending. Clients who were directly affected by the outbreak could apply for the Covid-19 payment break loan, which meant the bank covered the client’s full bond repayment for up to three months to help them stay up to date with current repayments and keep their credit profile intact. Thereafter the client would begin approved repayments over a flexible period with zero fees at the prime interest rate. The second option is the home loan payment break, where their debit order is suspended for three months. At the end of this period, the client would be required to pay a revised monthly repayment.

Absa’s comprehensive payment relief programme allows customers the choice to defer payments on credit products, including home loans, for a period of three months, explains Geoff Lee, managing executive for home loans at Absa Retail and Business Bank SA. Nedbank customers have three options, says Thozama Mochadibane, head of Customer Delight at Nedbank Home Loans. If the customer’s income was impacted temporarily owing to Covid-19, they can defer their monthly home loan payments or pay only 50% of their instalment for three months, after which the arrears are restructured for a fresh start. In the event of permanent loss of income, such as retrenchment or the closure of a small business, solutions would be tailored based on the customer’s individual circumstances. Standard Bank, too, offers a variety of relief packages for which customers can apply if their income has been directly affected by the coronavirus crisis.

Home loan applications

Giger has noticed an increase in high loan-to-values and reliance on variable income. Given the significant uncertainty about the recovery rate of the economy combined with the anticipated reduction in income, FNB has decided to take a cautious approach towards the approval of home loan applications. Lee says a customer’s ability to take on additional debt is assessed carefully when processing a loan application at Absa. That has not changed because of Covid-19. Mochadibane says Nedbank has had a drop in the number of applications for home loans during lockdown, but the approval rate is unchanged. She says many customers may have suffered partial or total loss of income, but there are others who benefit from the recent 2.5% reduction in the prime lending rate.

In these unprecedented and uncertain times, it is of critical importance to have a sound credit score if you are applying for a home loan. Tappan says Mortgage Max is all about responsible lending and a healthy credit rating is one of the key factors in determining whether an applicant can afford to repay a home loan. It is a basic requirement for any credit assessment. The good news is that none of these Covid-19 debt relief packages would affect a customer’s credit rating negatively.

 

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