Real Estate Investor Magazine South Africa March 2014 | Page 16

COVER STORY
property, because the interest – the cost of
credit – is a mind blowing R521 704 – and that’s
without the upfront bond costs of R7 340.
Indeed, if you are paying more than double
for a property, it most certainly becomes
unaffordable.
As Stuart Murray, co-founder and former
editor of FinWeek commented in a recent
Pam Golding media statement: “The key to
a healthier residential property market lies
with the banks. A major issue when seeking a
mortgage bond is not simply the strict lending
criteria laid down by the National Credit Act.
It is the fact that while we still have the lowest
prime lending rate in decades, consumers
face stiff repayment costs for credit, whether
involved in a home mortgage bond, vehicle
f inance or whatever. The National Credit
Act, admittedly, places a ceiling of 16.5% on
mortgage interest rates, so bondholders will
pay somewhere between 9% and 16.5%. Is this
really low? Hardly, by international standards
– or by current disposable income levels. The
average required deposit is also a stiff hill to
climb for many aspirant homebuyers, although
mortgage broker ooba reports that banks are
approving slightly lower deposits, down to
14.66%.”
A new way of buying property
It is hardly likely that the banks will come
to the rescue of the property market. They
have brought the entire property market to
a standstill because they won’t extend credit
against the security of a solid asset class, and if
they do, they provide this credit as such a high
interest rate, it becomes unaffordable.

And when the buyer does not have to obtain
finance, which is time-consuming and difficult,
and does not have to fund the bank-imposed
sky-high cost of finance, property suddenly
becomes much more affordable.

How does it work?
Installment sales is a method of buying property
made possible through a little-known piece of
legislation called the Alienation of Land Act
no. 68 of 1981 (ALA), which protects both the
seller and the buyer. It is one of the few pieces of
legislation passed in South Africa that actually
empowers the people of this country.

“
“Estate agents report that
about 5% of current
property sales are concluded
through an installment sale”

The ALA came into effect in 1981 to provide
an alternative to property sellers and buyers
who could not obtain loans from the building
societies that, at the time, required a 50%
deposit. It was again widely used in the late
1990’s, when the interest rate was 25.5%,
making bonds entirely unaffordable.
An installment sale allows the purchaser
to buy a property by paying the seller in more
than two installments (in usual bank-financed
transactions there are two installments: the
deposit and the final settlement amount) and
over a period longer than one year, but not
longer than five years.

What we need is a new way of buying property
that circumvents the two main challenges
we face in the property market today: the
unavailability of credit and the cost of credit.
In short, we need a way to buy property without
finance from the banks. And it already exists.
It is called an installment sale. Estate agents
report that about 5% of current property sales
are concluded through an installment sale.

ALA transactions also fall under the NCA,
which places such onerous conditions on the
parties that installment sales involving an
amount exceeding R500 000 is only practical
if the property is purchased b HHY