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Life after lockdown payment holiday

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Banks say South Africans are doing better than expected after the suspension of Covid-related aid packages but it’s too early to determine the full impact

Six months on from the start of the hard lockdown, South Africans are clawing their way through a new reality that does not include payment holidays and Covid-related exemptions.

So far, they seem to be doing better than expected but the circumstances are still too fresh to know how severe their stress is and how long it will last. Many homeowners are behind on their bond repayments, some are selling their properties for various reasons, and more are turning to renting, yet the overall situation does not appear as dire as it sounds.

As at the end of last month a “small percentage” of Absa home-loan clients whose payment relief had expired were late or in arrears with their payments, says home loans managing executive Geoff Lee.

The figure is, however, expected to “significantly reduce” as the bank takes further measures to reach out to them and further help through its distressed customer assistance programme Siyasizana – which translates to “we are helping each other”.

Tiffany Singh, head of collections at FNB home finance, says generally its customers who were offered debt relief are “performing well”. “We’ve been tracking their debit orders and payment behaviour. There are still customers who require assistance, who have been helped with extended relief or payment breaks but, due to the lockdown reducing to level 1, we have noticed that more customers are returning to work and are able to make repayment arrangements.”

Lee notes though that the percentage of Absa customers making payment arrangements is in line with the numbers prior to the lockdown period. And customers who have come under financial distress due to Covid-19 are not yet losing their homes through repossession.

He adds: “A significant portion of customers who are not coping with their bond repayments indicated that they are experiencing once-off or short-term stress. On that basis, we believe it is premature to assess the full impact of the stress the customers are feeling.

“The rest of 2020 will provide more data points on the impact and the duration of the stress, especially as the assistance packages that customers are receiving from the government and businesses expire.”

Some FNB customers who are employed in industries negatively impacted by Covid-19 have fallen into arrears and need assistance to repay their loans. This, Singh says, may take longer than typical repayment arrangements before Covid-19.

“In those instances, we are assisting with special arrangements such as longer-term arrangements to assist customers to rehabilitate.”

Since March, the bank has seen an increase in the number of special arrangements being made compared to prior to lockdown. However, since the re-opening of the real estate industry in June, FNB has seen a “significant increase” in interest from property buyers, with the number of loan applications increasing by approximately 40% compared to pre-lockdown levels.

Absa is also experiencing an increase in the number of home loan applications month on month from June 2020 – to levels higher than pre-lockdown, although Lee says is too early to say whether this sustainable.

Alexa Horne, managing director of Dogon Group Properties, says the market has been “very buoyant” and sellers are not necessarily listing their homes for financial distress reasons. “Plenty of the movement is attributed to downscaling where sellers are going into a different cycle of their lives… Many second homes are being sold as the owners aren’t using them enough to justify the expense.”

She does acknowledge that sellers are feeling the pinch due to Covid-induced reduced earnings but says the low-interest rates are helping ease some financial pressure.

“However, those who bought properties with a view to generating income via short-term rentals are really feeling pressure and I imagine more and more of this stock will be coming onto the market should short-term rentals not resume their previous activity levels.”

Data from HouseME, an online property letting agency, shows that “fewer than 25%” of leases had some form of payment amendment through hard lockdown.

While some negotiations included rental reductions (which diminished the remaining contractual rental obligation due), Ben Shaw, founder and chief executive, says rental relief – where landlords offered a payment holiday but maintained rights to pursue full rent over the following months – was more common.

This acted as liquidity for the tenant market. “By making use of rental relief and/or reductions, tenants have mostly met their obligations over the past six months. We are now, however, seeing spikes in default rates and a slew of early termination requests…

“Tenants who have lost their jobs have in some cases also moved out of rental accommodation (downsized, moved into digs, back home or in with friends).”

The macro-economic situation, including job losses, will “haunt” consumer tenant profiles for the next 12 months at least, he believes.

On the other hand, tenants who retained their jobs and whose income is unaffected are in “stronger positions than before” as the market has corrected itself to price in the now low-affordability threshold of the average tenant. Shaw also feels many homeowners may be forced to become tenants in the short term.

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