Housing market in doldrums

Johannesburg - The township housing market is down, and has taken along with it the fortunes of many emerging estate agencies, mortgage originators and developers.

Township realtors who two years ago were doing 20 transactions a month say they now consider themselves lucky to do 10.

"In the past year we have seen many agencies shut down," said Mighty Raseroka, managing director of Mighty Obriene Homes, a market player in Ga-Rankuwa and Soshanguve.

"It's tough out there. Generally the residential property market has come down, but in our markets the situation is bad," he said.

The prices of township property had come off significantly.

"Some of these properties are fetching up to 40% less. Your standard township four-roomed house which in 2006 sold for R280 000 today goes for about R200 000.

"It's a buyer's market out there; they make the prices."

Raseroka said some banks appear to still redlined certain township areas, thus making it difficult for estate agents with a focus on these markets to thrive.

'The pinch we are feeling is nothing new'

Eastern Cape realtor Xoliswa Tini of Xoliswa Tini Properties said the tough period being experienced by the property market was an opportunity for the brave to market themselves vigorously so that when the market woke from its slumber they would be ahead of their competitors.

"There really is no challenge with stock and buyers. The challenge is with the banks, who are nervous to lend out," Tini said.

Banks were asking lower-income households for deposits of up to 30%, which could run into thousands of rands which many of these would-be buyers simply did not have.

"The stringent lending criteria now in place after the introduction of the National Credit Act has compounded the situation," she said.

Several smaller agencies in Cape Town, Port Elizabeth and East London had already closed shop.

"The pinch we are feeling is nothing new. We had similar experiences in the late '90s when interest rates shot above 20%.

"Some companies never recovered from that because they did not invest sufficient capital back into their businesses and did not make provision for financial reserves to sustain their businesses during the rocky ride," said Tini.

She explained that she invested sufficient capital back into the agency as reserves because the reserves that a business built would act "as surety when uncertainties hit the market, so a company can ride out a storm relatively unscathed."

Kay Chipana, of Khayalam Properties in Polokwane, Limpopo, said volumes were down as much as 70%.

There is a lot of vertical integration in the market, with the leading estate agencies owning into the top mortgage origination firms which until recently had a huge hold on the banks. This has made it virtually impossible for new players to penetrate the market as banks often enter into exclusive arrangements with these entities.

Sharp drop in mortgage loans

Mortgage originators are middlemen who negotiate lower rates on behalf of home buyers, who also try to make sure that loans are structured to suit clients.

Nakedi Magodielo, managing director of Agang Bond Originators (ABO), one of few such firms that are wholly black-owned, said the economic slowdown had been a blessing in disguise in that it had liberated the banks from the hold of the large market players.

"Mortgage advances growth has been on a sharp downward trend. The originators are no longer bringing in the big numbers, so they can no longer dictate to banks," he said. "Going forward, it should be a lot easier to make further inroads in the market."

Magodielo said even attempts at black economic empowerment in bond origination had not been meaningful.

Often when established firms approached black counterparts with a view to a merger, the latter was asked to play a subservient role, he said. ABO had been approached, but the would-be suitor had wanted it to become an aggregating firm and not the originator it is.

Aggregation is essentially sourcing of business for an originator.

Absa this week released the December 2008 numbers for mortgage advances, which showed that advances by monetary institutions slowed to 13,2% from 14,9% in November, based on data that was released by the South African Reserve Bank.

This was significantly lower than the high of almost 31% year on year that was recorded in October 2006, and was also the lowest year-on-year growth rate recorded since August 2003.

The bank said the slowing growth in mortgage advances last year was to a large extent driven by the sharp drop in new mortgage loans approved by banks in respect of residential property.

The residential segment has the biggest share in total mortgage advances. Data available for new residential mortgage loans approved up to the end of the third quarter of last year showed a decline of 30% on a year-on-year basis.

- City Press