Entrepreneurship is being taught in schools today and many parents encourage their children to start something of their own instead of applying for a job within a company.
When it comes to buying a home, however, the problem is that these entrepreneurs find it difficult to get a home loan. This is according to Lanice Steward, managing director of Knight Frank Residential South Africa, who says a lot of young adults are finding it difficult to climb that corporate ladder and need to find a way to make it on their own. She says these entrepreneurs are feeding into the economy and are creating jobs and yet they are 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.
Steward says it’s understandable that banks need to cover the risk; however, if the bond granted is not a 90 to 100 percent bond, then surely they should be protected by the value of the property?
“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 percent of the value of the property and in the upper end only 65 percent of the value. This recovery at sales in execution is not high enough.”
Steward says 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. She says 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 amount 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 high risk home buyers.
For an entrepreneur to apply for a home loan at present, the banks need two years’ worth of audited financial documents, which have to be signed off by an accountant as well as their latest tax return from 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.
According to Steward, in a recent case, a South African working offshore who owns his own business tried to apply for a bond. She says he was told that, firstly, he will only get 50 percent 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 the country and settle, and employ people instead of making it difficult to establish themselves. South Africa’s private sector is responsible for well over 80 percent of the employment opportunities and it has to be fully appreciated how heavily South Africa relies on keeping them in the country.”
SOURCE: http://www.property24.com/
