The colour of credit comes under scrutiny

Two months into the new credit dispensation under the National Credit Act and some disturbing cracks are beginning to show. As the Financial Mail’s July 6th feature articles* on the NCA showed, most affected sectors have seen a slow-down in the granting of credit but rising interest rates, problems with eNatis and, for domestic property, the traditional winter slowdown have also been factors in declining sales.  However, it is also clear that the implementation of the Act within credit-granting institutions has been less than smooth. More training, such as that recently offered by credit experts PIC Solutions’ Credit Academy, is clearly needed. And now there is the unpalatable whiff of potential racism in the air.  M&G online** reports the head of the National Credit Regulator, Gabriel Davel, as suspecting racism in refusals of credit and has pledged to audit recently rejected loans against existing credit bureau scores.The Act itself is clear in this regard. Chapter 4 on Consumer Credit Policy outlaws discrimination in respect of credit (Section 61) and refers directly to the Constitution’s Bill of Rights’ Equality Clause. Further than that, as this may be a factor in applicants understanding both their rights and responsibilities under the new Act, the NCA requires that credit providers offer information in not only an official language that the consumer reads and understands but also plain and jargon-free language as well. It’s clearly a moot point whether all credit providers are complying with the latter clauses (Sections 63 & 64), let alone giving declined applicants the real `dominant’ reason for credit being refused (Section 62).

If Davel is as good as his word, credit providers’ legal departments would do well to become familiar with these and other aspects of the Act quite quickly. And it is clear that some are more aware of their obligations than others. Stephen Leonard, MD of PIC Solutions, concurs: “It is inconceivable that marginalisation or discrimination was the intention of the Act: close reading of Chapter 4 makes that very clear. But unscrupulous or just plain naive lenders may be hiding behind other reasons to discriminate on a number of grounds. The only grounds admissible are those of the customer’s credit history and risk and whether they are able to afford the credit applied for: it’s that simple.”

Thus it is that the affordability calculation, which is now somewhat more complex than the banks’ previous rule-of-thumb bond assessment criterion of 30% of gross household income, must be understood and applied across the board as fairly and as transparently as possible. And it appears there is a demand for training that clarifies the calculation process. Already oversubscribed at its last seminar on that topic in Johannesburg two weeks ago, PIC Solutions’ Credit Academy has responded by offering another three workshops on the affordability calculation over the next three months - one of which will be in Cape Town.

Leonard concludes: “The problem is that there are no set formulae or specific criteria for a detailed affordability calculation - and there obviously should be. The workshops intend to find a way to standardise the process, moving from an affordability framework to a detailed common methodology. We believe such a protocol would be a good step forward in the fair and proper implementation of the Act. Without it, the delays, frustrations and confusion will only continue.”
 
In the meantime, the colour and credibility of your credit - and how your fitness for it is calculated - appears to be up for debate. Let’s hope that PIC and Gabriel Davel are not the only people committed to clearing up the confusion, drawing the necessary lines and making the National Credit Act do what it set out to do -  allow access to credit for all who can afford it, off a level playing field, devoid of any discrimination whatsoever.
 
*Various articles - Financial Mail, July 6th 2007.
 
**”Colour-coded lending?’ by Maya Fisher-French on M&G online, July 29th 2007.  

SAPOA, NHRBC resolve issue

In a breakthrough move, the newly-established South African Property Owners Association (SAPOA) Legal Committee and the National Home Builders’ Registration Council (NHBRC) have agreed to work to refine the NHBRC Code of Conduct that SAPOA spoke out against in June this year.SAPOA was initially concerned about a lack of consultation with the commercial and industrial property industry during the process of promulgating the NHBRC’s Code of Conduct, a document that SAPOA believed would have far-reaching consequences.

“The Code of Conduct will effectively override certain existing legislation governing our industry,” said SAPOA CEO Neil Gopal at the time.

“That includes the National Building Regulations, the Alienation of Land Act and the National Environmental Management Act, which would all affect SAPOA members.”

Ongoing attempts to talk further and a willingness on the part of both organisations to meet, has now borne fruit. A successful and informative meeting was held on 26 September, giving SAPOA the opportunity to present its comments to the NHBRC CEO Phetola Makgate.

“We discussed the Code of Conduct clause by clause and our comments were well received,” explains SAPOA legal services manager, Tsakane Shilubane.

“We are pleased to confirm that the NHBRC accepted our comments and our proposed changes.”

The revised Code of Conduct has been critiqued by the Legal Committee and additional input has been submitted to the NHBRC for their further consideration.

It’s a very positive start for the SAPOA Legal Committee, which was established to understand legislative changes and to engage with both members and other stakeholders in protecting member interests.

“The Legal Committee has certainly made a good start,” says Shilubane.

“We look forward to making continued progress in the future.” 

SA coastal property prices up 12,8%

South African coastal property inflation rose by 12,8% year-on-year (y/y) in May this year from 11,9% in April, the Lightstone Coastal Price Index released on Friday showed.The index includes all repeat property transactions on property within 500 metres from the coastline.

At the same time, the Non-Coastal Index inflated by 18,8% in May from 19,1% in April.

“The lower coastal belt inflation rate, compared to the non-coastal index, is seen as a reflection of the greater cyclicality of strongly holiday property-driven markets, with potential buyers more easily being able to hold back in adverse times such as an interest rate hiking period,” Lightstone said.

It said the lower rate of inflation for some time was arguably a “necessary evil”, following a boom period that eroded affordability.

“However, the narrowing of the price inflation gap between the two indices, with coastal price inflation rising, suggests that the ’shake-out’ in the coastal market may be drawing slowly to a close, although one mustn’t dismiss the possibility of further relative weakening in the figures for the second half of 2007, remembering of course the impact of both further interest rate hikes as well as the National Credit Act (NCA) implementation,” Lightstone said. – I-Net Bridge 

WEALTHY CHINESE KEEN ON SA PROPERTY

There was huge interest in the South Africa residential property market among high net worth visitors at the recent China International Luxury Property Show in Shanghai, where 50 exhibitors represented some 15 nations from around the world, reports Andy Collett, MD of Pam Golding Properties’ International Division - the only South African real estate company present at this event.“Despite the fact that this was only the second international property exhibition ever held in China, it was extremely well organised, and the 6000 or so visitors to the event were all high net worth people, including VIP’s and numerous high powered business executives - genuine buyers,” says Collett, who gave a presentation to visitors which provided an overview and highlights of the SA property market.

“During the three days of the exhibition we interacted with at least 600 serious buyers who asked detailed questions regarding the various developments - such as Eden Island in the Seychelles and the Majestic in Kalk Bay in the Western Cape - and other properties that included Winelands, bush/wildlife and golf estates in South Africa marketed by PGP. In addition, a further 1 500 or more people visited our stand, taking photographs and
brochures of various South African properties on offer,” says Collett, who also appeared on Chinese TV twice during the exhibition.

He says Africa holds a definite mystique for the Chinese market, and although some had friends or relatives in South Africa - and a few had even visited the country - most only recognised Cape Town and showed what is expected to be a strong appetite for leisure property here. “It was much the same situation when we first showcased South African property in Ireland some eight years ago - it’s a matter of providing a great deal of
information on the country as well as the property market, and then a process of returning each year to attend top property exhibitions. The process takes several years, but once the idea has caught on, we anticipate an influx of new buyers,” says Collett.

“There is huge wealth in China - with ready cash available - and price was not an issue in regard to looking at property here. One buyer whom we are currently negotiating with is a highly respected business executive involved in the mining industry in Africa, who is seeking a large executive home in Cape Town. We made the acquaintance of many useful contacts including property developers who are keen to work with us in future - particularly in
regard to the top end of the market.

“The Chinese economy has seen extremely sound growth of between nine and 10 percent per annum since 1987,” says Collett. “In terms of residential property, prices of between R8 million and R15 million for luxury homes in Shanghai are comparable to the pricing of such properties in prime locations in South Africa. There is massive development and growth potential in the country, and as they don’t really have leisure resorts, visitors to the show
were extremely interested in properties for leisure use.”

Following the show PGP is currently following up on all the enquiries received, submitting further information to interested buyers from the exhibition. Following on the visit to China, PGP will exhibit at the Worldwide Property Show in Dubai from 1-3 November (2007), and then at the Moscow International Property Show on 16 and 17 November. These tours are
the forerunner of future property tours in these countries.

Article written on: 2007-10-15