Are banks 'killing' the Property Market?

Has it ever struck you just how many people are property experts when you mention that you are thinking of buying or selling a property?

These well-meaning advisers – with opinions that are certainly influenced more by hearsay than knowledge – will say that now is not the time to be involved in the property sector and, as a rule of thumb, they think they’re right.

People with a little more knowledge, like estate agents, will say it’s an excellent time to buy but, if you want to sell, make sure that you’ve priced your house correctly, particularly if it falls into the upper price brackets.

Do estate agents give you a true value? Never. They give you a ‘gut-instinct’ based value that is determined by what you want and what they think they can get. If the house is slow to move, then the price is too high. It’s a pathetic basis for determining a true value.

Bankers (responsible for lending the money) often won’t say a word – except among friends. And the sad fact of the matter is that bankers are the ones who dictate the state of the property market. If they lend money, sales boom. If they don’t sales dwindle.

In years gone by, when the cyclical swings were not as great as they appear to be today, banks would look for value in a property and would grant a bond based on the value that they attributed to it.

You would expect that pattern to be cast in stone and that, today, if you were to go to four different banks, you would get a very similar valuation from all four of them.

And that’s where you’d be so wrong. Different banks have different criteria and they use different yardsticks to adjudicate value. Ask for a value from a banker and you’ll get four very different ones.

This, naturally enough, makes it incredibly difficult for property owners and for estate agents who, for instance, put in an application for a bond (based on a fair purchase price) to all four of the banks and find that some banks come back and say there is “insufficient value” in the property to the grant the bond amount applied for.

The more expensive the home, the greater variation there is. And much of that valuation process appears to be purely subjective rather than scientific.

Question a bank about the details of why the value is so low and they will come up with all sorts of subjective reasons: “It’s not the right property to be buying in this market” or “The property is over-priced for the area” or “The owners have over-capitalised and want too much money” or the “The asking price is simply too high for the home” or, mostly importantly “We won’t grant a loan of that size against that property”..

Forget the fact that the buyer has a right to decide what amount he or she is prepared to pay for the property in question. Forget the fact that the bank won’t pay a penny of the excessively exorbitant interest rates that are calculated over the next 20 or 25 years. That’s the buyer’s responsibility.

Just remember banks borrow money from the Reserve Bank at 5,5% and charge the money they’ve borrowed at prime of 9% so banks make 3,5% gratis before lending a bean. It’s iniquitous.

If that’s not bad enough then we have the other factor: banks can now stipulate what a house is worth by making a snap, subjective and often unfair value judgment.

I watched one of these valuers at work on the property that I currently rent. He had a measuring tape (on wheels to calculate the perimeter of the house) that he wheeled past the plants (not next to the house) to give him a rough idea of the outer boundary.

Then he walked through the house, taking no more than five minutes to survey the lot. Then he swaggered through to my office demanding that I drop what I’m doing and immediately let him out.

If he was here for five minutes then that was a lot.

I went outside with him and waited next to his run-down white jalopy while he searched for an address in a map book.

After I had spent more time looking at him than he had spent looking at my house, I tapped on his window and said, rather sharply, “Listen, bud, I’m busy so why don’t you leave find directions somewhere else rather than just wasting my time.”

He drove away mumbling – and I didn’t give a fig.

His few minutes here resulted in a decision worth more than a million rand. It’s totally absurd and certainly a deeply unprofessional way to determine the value of a property.

His visit was typical of all those others I have experienced when valuators come to value a house. In the course of my lifetime I have bought and sold more than 20 properties and I have never had a different experience from a bank’s valuation man.

So I was hardly surprised to read the comments from Ronald Ennik, an executive director of Leapfrog Property Group who says that banks are damaging the property market by continuing to value properties “too conservatively”.

He’s quite right. I would take it further than Ennik did: I would say that banks are killing the property market and they seem to be doing so with a smile on their corporate faces and it makes me sick.

Apart from making it really hard to qualify for a bond, the banks are now deciding the value of property and what it’s worth. How unfair is that?

Homebuyers’ dreams are smashed by a cretin who spends less than ten minutes looking at a property. The same cretin who cannot even read directions in a map book.

And the bank he represents accepts his word as gospel – the final say on what a property is worth. It’s bizarre.

Surely there must be a less subjective way of determining property values?

Professional land valuers (like my cousin) will tell you that there is a lot more that goes into compiling an accurate and realistic property value than just wandering around with a tape measure and a pair of reasonable eyes.

And it is these professionals that should be doing the valuations for banks and it is their figures that should be the basis for any bond regardless of which bank it is that’s granting the money.

Property values must surely be based on measurable criteria and not on value judgments. Value judgments are not a valuation, they’re a guess. And I wish that Standard, Absa, Nedbank and FNB would remember that.

And then stick to lending money based on the risk profile of the individual and not on whether they approve of the purchase he or she is making.

I also wish that Capitec and African Bank (and others) would step into the market and shake it up completely by adopting a more fair and reasonable approach.

Because as things go mortgage-lending banks are just a very motley bunch.

*Hartdegen writes a regular column for Property24.com. The content of his columns constitutes his personal opinion and doesn’t pretend to be facts or advice.