In schools today, entrepreneurship is being taught and many parents encourage their children to start something of their own instead of applying for a job within a company. The problem, however, when it comes to buying a home, these entrepreneurs find it very difficult to get a home loan (if at all), says Lanice Steward, managing director of Knight Frank Residential SA.
“A lot of young adults are finding it difficult to be able to climb that corporate ladder and need to find a way to make their way on their own. These entrepreneurs are feeding into the economy and are creating jobs and yet they being penalised by the banks for their choices when they apply for home loans, which is an important part of being able to establish yourself and continue to grow as an adult,” said Steward.
“Although it’s understandable that banks need to cover their risk but if the bond granted is not a 90 to 100% bond, then surely they should be protected by the value of the property?,” she said.
“At a recent Standard Bank function, there was an indication that, of the properties going to auction, in the lower end price brackets they are only recovering 45% of the value of the property and in the upper end only 65% of the value. This recovery at sales in execution is not high enough,” she said.
“The banks are responsible for the fact that the processes they have in place to recover the amounts on outstanding bonds is inept and corrupt. In certain areas, “white collar gangs” are in cahoots with Sheriff’s of the court and have gone so far as to threaten young entrepreneurs just trying to buy homes to redo them and put them back on the market.”
The banks should be acting in the client’s interest, and in the case of a sale of a distressed property they should be trying to recover as much as possible of the amount outstanding so that the original owner is not still liable for any amounts on his bond. If they corrected their way of dealing with dispensing of properties from sales in execution, their risk factor would be lower and they then would not have to penalise those so strongly whom they feel that are higher risk, said Steward.
For an entrepreneur to apply for a home loan at present the banks need two years’ worth of audited financial documents, which has to be signed off by an accountant as well as their latest tax return to the previous financial year end. They must also submit six months’ non-internet bank statements from their business and personal accounts and a letter from their accountant confirming income. The salary shown in the bank statements must tie up to the tax return figure and the company records must show that it is completely solvent and liquid.
“In a recent case we dealt with, a South African working offshore and who owns his own business tried to apply for a bond. He was told that, firstly, he will only get 50% because he works offshore but to make matters worse, because he is an entrepreneur he would not qualify for the bond.”
“In South Africa we’re trying to create jobs and many are forced to work for themselves. We should be encouraging them to stay in SA and settle, and employ people instead of making it difficult to establish themselves. SA’s private sector is responsible for well over 80% of the employment opportunities and it has to be fully appreciated how heavily SA relies on keeping them in the country.”