FNB lowers house deposit

2009/07/01 03:01:00 PM


Johannesburg - In 2008, high interest rates, the National Credit Act (NCA), the lending policies of commercial banks and a global financial crisis were all held accountable for poor property sales and falling house prices.

Now, a year later, conditions have hardly improved. Property sales remain poor and prices continue to slide. Yet, interest rates have reduced significantly back to 2006 levels and many commentators are saying that the worst of the financial crisis may be behind us.

"This gridlock in the industry can only be attributed to a series of deep- seated misconceptions in the minds of owners, buyers, agents and even some property market commentators," says Jan Kleynhans, CEO of FNB Home Loans.

"Rocketing prices and rapidly expanding demand some three to four years ago have left many people with a deep-seated belief that these conditions will return and they should therefore price to sell and bid to buy accordingly. Sellers - specifically - have difficulty in accepting that the value of their house is falling and are extremely wary of selling in a low market if they believe a recovery is around the corner."

FNB's recent Residential Property Barometer (Q1-2009) agents that were surveyed indicated that the percentage of properties sold at less than asking price remains above 80%, suggesting that many sellers are still not realistic in their pricing.

FNB's view is that recovery will be slow and that further weakness will extend into 2010. It is this scenario that is partially shaping the bank's decision-making when it considers an application for residential mortgage finance.

"Property values need a number of preconditions for growth. The most important of these is underlying economic vitality. And this condition has been lacking for some time, particularly in terms of consumer affordability levels and sluggish income growth or even income contraction. This is exacerbated by lower consumer confidence levels as the average potential property buyer is concerned about losing their job or at best a reduction in income growth.

"It should come as no surprise, then, that prices continue fall in consecutive surveys reported in the FNB Property Barometer and every other report on the residential property market. Thus one finds an oversupply of properties, typically by those needing to sell and sluggish demand due to low consumer confidence levels," says Kleynhans.

"Financing residential property remains an active business. Across the banks, thousands of new mortgages are granted every week. While FNB is not a dominant mortgage-granter and secures about 15% of the market, we are slowly increasing our market share and continually seeking new business opportunities despite the lackluster business environment," says Kleynhans.

Recent statements in the media suggesting that banks are actively withholding residential lending to the point that a lack of credit is undermining the market are, however, far from the truth. FNB's decline ratio stands at around 50% of all applications and this level has only increased moderately in the past 12 months.

Lower deposit

More than 50% of people applying to FNB Home Loans are declined due to a combination of excessive debt, high living costs or poor credit records.

For customers in good standing however, FNB is currently reviewing its earlier requirement of a 10% to 15% deposit "across the board".

While deposits will continue to be a requirement in mortgage finance, lower deposit requirements will aid affordability without either compromising the customer's debt ratio or exposing the bank potential losses arising from a non-performing loan.

"We have lived through such a rapid transition from boom-times to a recession that we all need to review our attitudes towards our financial affairs. In boom-times when asset prices were rising, it made little sense to save. In a recession, exactly the opposite is true," asserts Kleynhans.

"Consumers need to adopt a habit of saving. It may take a year to two to accumulate a deposit, but that is exactly the sort of change in behaviour South African consumers need to make. South Africa's traditionally low savings rate has been exacerbated by previously low deposit requirements on mortgage loans," says Kleynhans.

Property Economist at FNB Home Loans, John Loos is cautiously optimistic about the immediate future. "Although interest rate cuts may well spark a mild rise in new loans granted, it will probably be a long time before the growth in the total mortgage or household credit outstanding turns the corner due to leads and lags between new lending trend changes and capital repayments catching up.

"Given the shaky global and local economic conditions, any rise in new lending is expected to be mild, as it is unlikely that lending institutions will come 'out of the starting blocks' quickly this time around."

- I-Net Bridge

Trade data boosts rand

2009/06/30 06:31:00 PM

Johannesburg - South Africa's rand firmed as much as 2% against the greenback on Tuesday, buoyed by talk of a large dollar selling order from two international banks as well as domestic data showing a trade surplus for May.
At 17:51, the rand traded 1.09% stronger at 7.7450 against the dollar compared to Monday's close at 7.83.
"There was talk that two international banks were selling (dollars) and until that order is done we might see the rand trade lower (firmer) still," a Johannesburg currency trader said.
"The rand has also been rather strong on the back of generally increased risk appetite. It's been extremely volatile and unpredictable over the last few days," he added.
The rand earlier touched a session high of 7.67 to the dollar after the country's revenue service reported the trade balance swung to its first surplus in 29 months.
A deterioration in the trade balance has been a key contributor to the current account deficit, which widened to 7.0% of gross domestic product in the first quarter of 2009, weighing on the rand.
Government bonds edged lower on Tuesday, pushing yields up in turn. The 2015 bond yield added 1.5 basis points to 8.485%, while that for the R209 bond maturing in 2036 was up 6 basis points at 8.6%.
- Reuters

'Resist the rate cut'


May 29 2009 10:33

Elma Kloppers

Johannesburg - Home-owners can save thousands of rands and significantly shorten the terms of their loans if they ignore the latest interest-rate cuts and pay as much as possible off on their home loans.

This is the response of Allister Long, managing director of Powerhouse Financial Solutions, to Thursday's one percentage point cut in the repo rate. This brings the prime lending rate down to11%. Since December last year interest rates have shed 4.5 percentage points.

Long says the home-owner with a R1m mortgage bond can shorten the term of his loan by almost four years, and save R321 000 if he ignores Thursday's interest-rate cut and continue to pay the higher monthly amount.

A home-owner with a R1m who has so far ignored all the interest-rate cuts and continued paying off the loan at the rate of 15.5%, will halve his term and save himself about R800 000, he calculates.

Thursday's cut amounts to a monthly saving of R689 a month on a R1m bond. If all interest-rate cuts since last December are taken into account, this home-owner now has R3 217 a month more in his pocket.

Alliance Group chief executive Rael Levitt says that home owners who are already in arrears with their monthly bond payments will unfortunately not experience relief from this latest decrease.

At this stage the lower interest rates are not giving the housing market the boost required to improve demand for accommodation.

Banks' strict lending criteria, where at least 50% of all loan applications turned down, are also a contributing factor.

Andrew Golding, chief executive of Pam Golding Estates, says the housing market is unlikely to improve within the next six months.

"The new reality is that prospective buyers will have to save to come up with the necessary deposit."

Koeberg unit to shut down

May 29 2009 18:30

Johannesburg - South Africa's state-owned utility Eskom will shut a unit of its 1 800 megawatts Koeberg nuclear power station for at least three weeks for maintenance, but the country's power supply would not be affected.

The unit, which will be shut in the early hours of Saturday, is one of two at the plant, each with a capacity of 900 MW.

"Eskom is confident that the supply of electricity to the Cape and South Africa in general will not be affected by the shut down," it said in a statement on Friday.

"Whilst Eskom is confident that it will meet the demand for electricity this winter, it is appealing to all South African to continue with their drive to conserve electricity," the power utility said.

Eskom said it will source electricity from other plants in the north of the country and two gas turbines whose output has been recently doubled to a total of 2 100 MW.

- Reuters


Manufacturing shows improvement


Jun 01 2009 12:00

Johannesburg - The seasonally adjusted Kagiso Purchasing Managers Index (PMI) showed a slight improvement, rising to 37.3 points in May compared with April's record low of 35.6 points.

Kagiso Securities has taken over the sponsorship of the PMI from Investec Asset Management.

Manufacturing output activity contracted at a slower pace in May, with the seasonally adjusted business activity and new sales orders indices reaching 35.1 - the best since February 2009 - and 35.7 - a 2009 high - respectively.

"At the very least, the decline in business activity seems to have stabilised," said Andre Coetzee, head of fixed income at Kagiso Securities.

The backlog of sales orders index recovered from a record low 20.5 to 27.2 points.

"The decline in near-term demand may have bottomed out in the light of a recovery in the seasonally adjusted inventories index from April's record low of 28.7 to 35.4 points," Coetzee said.

However, purchasing commitments failed to respond and posted a further marginal decline to 29.6 index points. This suggests that purchasing managers remain sceptical of a recovery in demand over the short term.

The lagged pass-through of weak demand conditions to employment is clear in the persistently low seasonally adjusted employment index.

"The marginal increase from 36.2 to 36.9 points in May points to continued very weak employment in the sector," Coetzee said.

The price index dropped below 50 for the first time since December 2004, indicating that price increases slowed further during May.

"This is a welcome relief on the input cost side for purchasing managers, and will hopefully ease consumer price inflation pressures down the line," said Coetzee.

Purchasing managers are more upbeat about future prospects - a majority of purchasing managers now expect business conditions to improve in six months' time.

Expected business conditions improved from 48.3 to 51.3 points. Expectations were at similar levels in September 2008 just before the global financial crisis intensified in the wake of the Lehman Bothers collapse, Kagiso noted.

"Looking at the rebound in the China, Global and Kagiso PMI there are early indications that the downturn in the manufacturing sector is bottoming out and that this sector could start to recover in the latter part of 2009," Coetzee concluded.

The survey is conducted on a monthly basis by the Bureau for Economic Research at the University of Stellenbosch in conjunction with the institute of Purchasing Managers in South Africa.

- I-Net Bridge