Tuesday, November 28, 2023

Who caused the surge in property prices…banks or valuers?

The local property market was recently gripped with alarm as pundits sounded warning bells and warned of a looming property market crash. There were indications that the long running surge in property prices was edging towards a sharp nose dive. The market appeared to portray two factors; the lingering possibility of a crash and the reality of soaring property prices. While property experts attempted to explain the out-of-the-ordinary property prices, their analysis was met with half heated and doubting responses from industry players. To date, many questions remain unanswered.

In a seminar held on Wednesday, Sethebe Manake, Founder and Chief Executive Officer (CEO) of Vantage Properties gave expert insight on the goings-on in the local property market. Among other things, she tackled the grounds for the rapid increase in property prices and dismissed the notion that estate agents and valuers were the instigators of escalating property prices.

“No agent buys a house. You as the buyer makes the final decision as to what property you are going to buy and at what price. In the case of valuers, we all know that valuation comes after the price has already been agreed on. Therefore it obtains that these two entities do not influence the accepted price,” she said.

Manake added that buyers over committed themselves by taking advantage of the loan facilities offered by financial institutions, which spurred activity in the property market.

“For the past six years people’s incomes have not been increasing while debt was rising. If anything the increase was very minimal. Also, let’s not forget that debt is based on income. So, if income was not changing, the only factor that was changing was the instruments that banks were using,” said Manake.

She gave the example of debt consolidation, an instrument through which banks combine several debts into a single new loan. She explained that because of limited understanding of the instruments offered by banks, many customers believed that debt consolidation granted them affordability to borrow more.

“Debt consolidation is intended to give consumers temporary relief from excessive debt burden. Ideally, customers who take advantage of debt consolidation should not be allowed to take on any more debt, but that is not the case in Botswana,” she said.

The 2013 financial report of Bank of Botswana (BoB) shows a salient trend to property loan financing. BoB statistics indicated relatively large loan limits for unsecured credit of up to P250 000, which suggests that personal loans are used to finance various commodities such as cars, property and business ventures.

“For property, it is appreciated that a sense of full ownership can be included in the non-pecuniary (monetary) benefits that may also be set against the cost of borrowing, including for unsecured loans,” stated the report.

The report’s survey data on declared use of unsecured lending indicated that 48 percent of unsecured credit lent by banks is directed towards building and renovations, with motor vehicle, household goods and furniture taking up 11 percent each. It also made reference to the fact that mortgage financing takes into account the legal title to land/property. However, the land tenure system in Botswana delays in processing and granting title deed applications, which contributes to the relatively low share of mortgage lending to total household lending. To support this, the 2015 Monetary Policy Statement reveals that mortgage lending declined from 40.1 percent to 18.4 percent between 2013 and 2014. Discussing the current state of the property market, Manake said the reality is that the local market is in a slump.
“But don’t panic, it is a cycle, it will change,” she said.

A slump in property is indicative of a phase in which property prices stop growing, as well as increased numbers of forced sales and vacancies. In the end, all agreed that the structure of financing offered by local banks may have activated growth in property market prices. This is despite the fact that Botswana has low rates of home ownership, which is the irony of the property market in Botswana. Manake is convinced that a mindset change to property is necessary in Botswana. To that end, Vantage Properties has launched a new service package that offers advice on strategic and proactive management of property investment.


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