Banks’ slow turnaround times hurting SA property investors
Commercial banks are taking longer to approve commercial loans and issue bank guarantees. As a result, an increasing number of local property investors are finding themselves unable to finance an opportunistic investment timeously.
This is according to Gary Palmer, CEO of Paragon Lending Solutions, who says the new legislation forcing banks to look more carefully at loan criteria has added a significant time burden to the process of applying for a loan.
“It used to be realistic to expect a sale agreement to be finalised from deposit to bank guarantee within two weeks, or a month at the most. Now banks are taking much more time to complete the process, sometimes longer than six weeks,” says Palmer.
According to Palmer, as a result of the banks’ conservative lending practices and their slow turnaround times, many buyers of properties are not meeting their deadlines to issue guarantees for the purchase of properties. The risk for the purchaser is that they lose their deposit. Should the deal fall through and the seller sells the property for a reduced value then the defaulting purchaser may be liable for the shortfall.
Palmer explains that generally the sale of a property is subject to a condition that the purchaser obtains a loan to finance the transaction within a certain timeframe. He says the sale will be only be legally binding and enforceable once this condition has been met within the time allowed. “A purchaser breaches the agreement when the purchaser fails to fulfil conditions by, for example, not issuing the required guarantee from the banks to approve the loan.
“What we have seen happening more and more is that the clients assume that the commercial bank will approve the loan, only to find it declined within a few days of the deadline to issue guarantees to the seller,” he says.
Palmer says this situation has become particularly prevalent in the property development industry over the past few months, as the banks will no longer consider residential investment property as sufficient backing for a loan. “Therefore, property developers with a significant asset base are finding themselves in a cash flow crisis and unable to take advantage of opportunistic purchases because banks will not approve the loan in time.”.
He refers to an example of a high profile property investor who had purchased an industrial property in Durban and required a bank guarantee to secure the property. “A week before guarantees needed to be issued, his commercial bank declined the loan due to the perceived lack of serviceability as a result of the upcoming expiration of the current leases.”
Palmer recommends that buyers who are experiencing similar hurdles in securing finance, look to an alternative lender who could issue them with a formal bank guarantee within seven days. “Our average turnaround time is 7 to10 days for a guarantee to be issued. Most reputable lenders should have similar terms. Once the transfer occurs then the lender can work with the client to secure long-term bank financing,” says Palmer.
Epic Communications (Pty) Ltd
Breaking News »