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New law deserves credit   Article Date :3 Apr 2007 New National Credit Act will affect the property industry. THE granting of home loans to consumers, possibly the largest debt most homeowners will ever have, justifies stringent controls and formal legislation. When implemented in June, the new National Credit Act will affect the local property industry, developers, consumers, banks and mortgage originators, and promises to offer all parties increased risk protection. The act is also intended to prevent discrimination in the process of credit allocation — especially as regards those homeowners in the lower income groups. However, some people in the property industry fear that the legislation will have a negative impact on the existing property market, including downward pressure on property sales and prices due to more stringent credit checks. The expected promulgation of the new law seems to be a contributing factor to the dampened growth in house prices — growth has been in single digits so far this year, compared to double digits in the first six months of last year. But, when seen from a legal perspective, the positive effects of the new law are clear. Linda Jordaan, director of Herold Gie Attorneys and a property law specialist, says the National Credit Act introduces new rights for consumers as well as measures that provide for informed credit consumption. “The act basically strives to improve access to credit for consumers at a reasonable rate from a reputable credit provider, to increase the availability of finance at a reasonable cost, to ensure that an increased access to credit does not lead to over-indebtedness, to educate consumers about credit, to protect consumers and deal with unacceptable practices and to enforce the relevant regulations,” she says. Jordaan says the new law also places increased responsibility on credit providers to refuse credit where it is not due. Credit providers must ensure that credit agreements are entered into only when consumers have a succinct understanding and appreciation of the risks and costs of the proposed credit. Institutions will be required to assess the proposed consumer’s debt payment history, existing financial means, prospects and obligations before they extend any credit facilities. “This is the most far-reaching consumer legislation to become effective in years,” says Jordaan. “The National Credit Act sets a framework for every type of credit transaction, from microloans to home loans, from overdrafts to furniture finance. Consumers, credit bureaus and providers of credit,ranging from micro lenders to banks, all need to get to grips with the new act.” She believes it will “undoubtedly facilitate the creation of a fair, balanced and transparent credit market” by not only protecting the consumer from unscrupulous moneylenders, but also helping people to be more responsible about using credit. Dr Willie Marais, president of the Institute of Estate Agents of SA, says although the overall intentions of the new act are good, it is fraught with grey areas. Delays of up to five days in the granting of bonds by the banking sector are already evident, he says, and agents are having to be far more cautious with deed-of-sale transactions, where sellers are burdened with the same risk as banks. Marais is also concerned that financial institutions may be overcautious, which may result in the decline of home loan applications that may otherwise have been granted. But Samuel Seeff, chairman of Seeff Properties, has a more positive outlook. He says overall the sentiment toward the new law is good, and “as long as the process does not become a hindrance”, increased protection of consumers should remain a priority. Seeff believes that estate agents will adapt easily enough to changes such as the recent implementation of compliance with South African Revenue Services requirements such as the provision of tax clearance certificates for all parties involved in property transactions. All parties should benefit in the long run, Seeff says, provided that there are no unnecessary delays or administrative bottlenecks. Much of the burden of the new law falls on banking institutions, which must carry out more stringent checks on the overall credit exposure of all borrowers before granting new home loans. There is some concern that turnaround times of bond applications could be extended, with delays of up to 60 days being mentioned. In additional, property developers worry that financial institutions will set unreasonably strict requirements for applicants to qualify for project finance. But Jordaan says the National Credit Regulator, a regulatory body that has been established to enforce the new act, has given the assurance that this will not be the case. Developer Chris Tapsell of Group 3 Property Developers says although delays in actual sales, and in particular pre-sale approvals, may occur, developers could also benefit where the focus originates from more genuine buyers. CLICK HERE TO RETURN TO THE MAIN NEWS PAGE