Property News

Opportunities with the National Credit Act
By Coert Coetzee

The thing that everyone was so afraid of – the National Credit Act – has been with us for longer than a month now. It came into effect on 1 June. There has probably not been a single seminar since the beginning of the year where I didn’t get questions about it. Everyone has wanted to know what I think of it. They want to know whether I think it is going to work against us or not. As usual, and true to my positive nature, my answer is always that I have no problem with it. As Jose Delgado, TREOC's Chief Executive Officer, always says, "You can't scare me!"

I feel the same: nothing scares me. I am not afraid of debt. I am not afraid of high interest rates. I am not afraid of shortfalls. I am not afraid of crime. I am not afraid of poor economic conditions. I am not afraid of difficult tenants. I'm also not afraid of the Credit Act. Most people are afraid of all of these things, but those who know how to operate and those who have the correct structures in place will make money when everyone else is running away.

The prophets of doom (the economists) are once again all over the newspapers with their predictions of doom and gloom. As a matter of interest, do you know how few of them actually own investment property? One particular bearded prophet – who at one point predicted that capital growth would come to an end in March last year, and then when that didn't happen, shifted his prediction to December last year – is once again hard at work on his forecasts. Newspapers are gobbling up his predictions, which are largely based on statistics. Although I find his statistics excellent, his predictions are pretty pathetic. He should rather stick to statistics. I must say though, one of his predictions that I read last week impressed me. According to the papers, he has predicted that one of the consequences of the Credit Act will be that debt levels will drop, which will in turn lead to a drop in interest rates. Well now! The man is finally starting to see the fundamental light!

I don't like hazarding predictions, but I don't think that you have to be as clever and learned as the prophets to venture a prediction like this. In fact, I’d like to add a few more predictions – or rather, assumptions:

Rental market: If people are struggling as much to get bonds as the papers say they are, then we can expect that more people will be renting. If rental demand rises, rental income will increase. Rent/value ratios will improve and shortfalls will decrease. This means that we’ll be able to buy more houses, because we’ll be able to afford more houses.

House values: If the demand from buyers decreases, then growth will slow down. The prophets state this as a negative thing, but I see it as an opportunity to increase your portfolio. Decline phases in the property market are usually very short, and afterwards values grow even higher than before. It has been this way for centuries!

Bond approval: It is already taking much longer to obtain bond approval than before. The property industry is in a state of panic about this; as long-term investors we are ecstatic about it. Treocians buy capital growth, not rental income. Capital growth turns in your favour as soon as your offer has been accepted. If it now takes two months longer for the property to be registered in my name, then that means I have an extra two months before I have to start working for the capital growth. You only have to manage the property once it has been registered, and by then it will already be worth more than it was when you bought it. Just remember to always write into your Offer to Purchase that you will take occupation upon registration!

New Developments: Developers are also starting to panic. They are beginning to realise that it is going to get difficult to sell their developments quickly. Time is of the essence to them. If they cannot get enough bond approvals within a certain period of time, they will not be able to get the development credit from the bank. Every day that the process is delayed costs them thousands of rands. So we are going to see fewer developments, but we are going to see better developments, because the fly-by-night developers will disappear. Oversaturated areas will also have a chance to recover, as a result of this.

Estate agents: Agents are going to have to wait much longer for their commission, because the credit approval process now takes so long. Thousands of opportunists who became estate agents in the past few years, and even set up their own agencies, will develop serious cashflow problems – especially those who did not make provision during the good years for the lean years. The result? We will end up with a better calibre of estate agent.

Property investors: During the past few years every Tom, Dick and Harry became a property investor. The greater majority of them simply climbed on the bandwagon without the vaguest idea of how to drive it, where it was en route to, or what might conceivably happen with it. The property bandwagon is going to go through some rough terrain over the next few months, almost like when the Voortrekkers trekked over the Drakensberg. Uninformed people and sissies are going to fall by the wayside in great numbers. Those who’re going to make it, the Treocians, will inherit the land of milk and honey on the other side of the mountain on their own, because true Treocians are informed, prepared and fearless!

To sum up: I see many OPPORTUNITIES! Be patient and use service providers that know how to apply the National Credit Act in your favour.

Happy House Hunting!