Bank credit squeeze to cre­ate new cul­ture

Weekend Argus (Saturday Edition) - - PROPERTY -

NOW THAT the credit crunch has closed the taps on the post-1994 na­tional bor­row­ing binge, South Africans are set to re­tur n once again to a cul­ture of sav­ing – a process that will add sig­nif­i­cant strength and sub­stance to the wealth-build­ing role of home own­er­ship, says Ron­ald En­nik, manag­ing di­rec­tor of the Gaut­eng divi­sion of Pam Gold­ing Prop­er­ties.

“At the bonded end of the res­i­den­tial prop­erty mar­ket, the process is be­ing driven by the banks’ tight­fisted mort­gage lend­ing poli­cies – they now gen­er­ally re­quire home buy­ers to put on the ta­ble de­posits of as much as 30 per­cent – and by the damp­en­ing ef­fects on house­hold bud­gets of the tight re­straints im­posed by the Na­tional Credit Act (NCA).

“Al­though the ret­i­cence of banks to ad­vance mort­gage fi­nance may well be bit­ter medicine for as­pi­rant home own­ers right now, and in the im­me­di­ate fu­ture, it her­alds the re­turn to the days when a house was a true store of value to its owner,” says En­nik.

“Put an­other way, the days of 100 per­cent mortgages are all but gone and this is the beginning of a process that will take the ‘smoke and mir­rors’ out of home own­er­ship and re­turn it to the (nor­mal) sit­u­a­tion where peo­ple who buy homes can ac­tu­ally af­ford them.

“As eq­uity-based home own­er­ship takes hold, it will foster a far more wide­spread cul­ture of sav­ing in South Africa – not least among the coun­try’s younger gen­er­a­tion, who have grown up in a con­sump­tion-driven cli­mate of neck-high debt… bliss­fully un­aware of the virtues and the ne­ces­sity of sav­ing.

“Also, by hav­ing mean­ing­ful eq­uity in their prop­er­ties, home own­ers will be mo­ti­vated to act more re­spon­si­bly by tak­ing proper care of their homes and by not de­fault­ing on bond re­pay­ments. By do­ing so, they will avoid the prospect of los­ing their hard-saved de­posits, on the turn, in a forced sale or auc­tion that would oth­er­wise be in­evitable.

“This con­trasts sharply with the past when, if there was no fi­nan­cial ‘up­hill’ in ac­quir­ing a house, there was cer­tainly no ‘down­hill’ in los­ing it,” says En­nik.

“The en­forced process of putting more eq­uity into home bonds will rip­ple into other ar­eas of wealth cre­ation and money man­age­ment – en­gen­der­ing a more sav­ing-fo­cused, debt-averse na­tional mind­set and pro­mot­ing bet­ter, more dis­ci­plined con­trol of house­hold purse strings.

“There is no ques­tion that in­ten­si­fi­ca­tion of sav­ing is ab­so­lutely es­sen­tial if South Africa is to achieve sus­tain­able eco­nomic growth in fu­ture. The strong, deep­rooted sav­ings cul­ture of coun­tries in the east sets a good ex­am­ple for us to fol­low. For in­stance, the to­tal sav­ings-to-GDP ra­tio in In­dia is al­most 30 per­cent and in China it nudges a whop­ping 50 per­cent – whereas in South Africa it is a pal­try 15 per­cent.

“An­other sober­ing thought is that South Africa’s house­hold debt ra­tio (the pro­por­tion of house­hold in­come spent on pay­ing off debt) is run­ning close to 80 per­cent, whereas house­hold sav­ings as a per­cent­age of our GDP is vir­tu­ally zero.

“Against this back­ground, it is es­sen­tial that good money man­age­ment – with the em­pha­sis on sav­ing – should be im­bued in the youth of South Africa at school level, as it is in many other coun­tries. The work the South African Sav­ings In­sti­tute is al­ready do­ing on this front is to be roundly lauded,” En­nik says.

Launched in 2001, and spon­sored by the state-owned In­dus­trial De­vel­op­ment Cor­po­ra­tion, the SA Sav­ings In­sti­tute is a non-profit or­gan­i­sa­tion ded­i­cated to de­vel­op­ing a ro­bust cul­ture of sav­ing.

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