Minister Mmamoloko Kubayi. Picture: Jeffrey Abrahams
Human settlements minister Mmamoloko Kubayi recently came under fire for her comments on “discriminatory practices” in the banking sector’s home loan application process, but an industry expert says she is ‘asleep at the wheel’ in the middle of a housing crisis.
Renier Kriek, managing director of Sentinel Homes, says the minister’s plan to change the law to force banks to explain why they reject loans to any previously disadvantaged person sidesteps the real issues in housing supply and demand, as well as any meaningful solution.
“Credit providers are profit-driven, not racially motivated. Banks are profit-seeking enterprises that make money from awarding credit, not from denying it. Home loans are a major source of their income and it makes sense that they are incentivised to grant as many as possible.”
He says it is not only implausible but also downright ridiculous to believe that there is some racially motivated cabal operating from back rooms at banks and credit providers for ends that are inimical to the profit-seeking motive of those businesses.
“Apartheid placed ideology before profit but in our democratic economy, any enterprise that turns down good money over prejudice will soon go out of business or be exposed by whistleblowers from inside.”
Kriek points out that the National Credit Act compels banks to reject risky applications.
“Banks will only reject home loan applications if it would be bad for business or if they are compelled to do so by the National Credit Act or other regulations.”
He says the National Credit Act clearly prohibits awarding credit to an applicant who does not have the financial means to repay it, is already over-indebted, or would become over-indebted due to the loan.
“It also already compels banks to give the applicant the main reason for the rejection. The minister’s proposal for disclosure introduces nothing new and given her team’s apparent statistical illiteracy has little chance of making any impact.”
In addition, banks that recklessly award credit put themselves at risk because the loan contract could easily be overturned by a court, he says.
“Changing the Act will only cause confusion and accomplish nothing except add to an already immense regulatory burden.
“It might also expose government’s lack of initiative in solving the affordable housing backlog in any realistic way. Does government plan to levy penalties on banks who reject loan applications in compliance with the law or common business sense?
“Because any such penalties or additional compliance costs will become part of the cost of doing business, passed on to customers and exacerbate the affordability problem.”
ALSO READ: ‘Read the Constitution’ − Kubayi clarifies housing comments following criticism
Kriek says what is needed from the housing minister are real steps towards clearing South Africa’s housing backlog are multifaceted but require politically expensive interventions on both the supply and demand side of the market.
“On the supply side government has been relatively successful with the RDP programme, which has housed millions of South Africans since its inception. However, the so-called gap housing market, which comprises about 30% of households who do not qualify for an RDP house and are also not wealthy enough to be meaningful participants in the open market, is left behind.
“Many of these households in the gap market segment continue to live in shacks or other informal arrangements despite being middle-income households and have little future likelihood of entering the formal market.
“Home loans to these households make up no more than 10% of home loans granted but should in fact be at around 50% if the market were functioning efficiently.”
ALSO READ: Housing needs govt-private sector collaboration – Kubayi
According to Kriek the most impactful solution to the housing crisis would be to remove the constraints placed on the holders of private capital in the residential property market, especially in terms of foreclosure and eviction.
“As President Ramaphosa has rightly put it, the private sector has money that can be deployed to meet the demands of our country and should therefore be enlisted through proper incentives.”
He points to the example of Northern Europe facing a severe housing shortage after World War II due to infrastructure destruction, which was solved in most of those countries by relaxing consumer safeguards.
“As it was easy for banks and developers to protect their interests and cheap to take a chance on some otherwise doubtful consumers, they invested heavily in the provision of housing. This quickly rehoused the population and once this happened, the governments gradually started reintroducing consumer safeguards.”
ALSO READ: ‘B-BBEE front’: Community schemes’ economic transformation sparks debate
In South Africa, he says, although housing remains a problem, foreclosure restrictions and courts that unduly and unnecessarily favour defaulting homeowners or tenants deter banks, developers and landlords from making substantial investments in housing. This limits supply, as can be seen from market statistics.
“We need to urgently review our current foreclosure and eviction legislation and procedures because, in the long run, it would unleash massive investment into the property market, resulting in a jobs boom in the construction industry, and ample housing for all.
“With a Government of National Unity touting that the private sector is key to the project of regeneration and economic growth, ministers should leave the race-baiting to the populists and work with the private sector interests to make a non-racial South Africa that works for its inhabitants a reality at last.
“There is more than enough money available in the world, it is simply a question of harnessing it properly.”
Download our app and read this and other great stories on the move. Available for Android and iOS.
