Propery & Wealth

Home-grown financial solution for a truly South African dilemma

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A home-grown, black-owned regional bank has broken the mould of almost only 100% risk-free financing of property transactions and snapped up the opportunity to finance the president.

The times are certainly a-changing and, for my dollar, much for the better.

In July this year we reported about the legal technicalities involved in the financing of non-security upgrades at President Jacob Zuma’s residence at Nkandla – situated on traditional land that does not belong to him.

The president faced the dilemma that while he was under the obligation placed on him by the Constitutional Court to repay the state the cost of non-security upgrades, he could not raise a (traditional) mortgage loan on Nkandla.

The core of the problem was that the land does not belong to him personally in traditional title. It, instead, falls under the jurisdiction of the Zulu monarch.

In addition, as Peter Bruce so ironically pointed out in an earlier Sunday Times article, President Zuma would, for a standard home loan, have to have the homesteads valued and it was by implication by no means certain that the lending institution (read: one of the big four banks) would find sufficient value to advance such a large loan.

The point then being that Nkandla was not a high-value asset in the free property market of the mainstream economy. It is a sprawling and high-risk (lots of thatch), high-maintenance (many different buildings) property in an isolated area of the country.

Surprise saviour

Then along came the Venda Society Building (VSB) Mutual Bank and its CEO, Andile Ramavhungha, confirming that they granted President Zuma a R7.8m home loan “to pay back the money”, since he was a qualifying individual!

To make the point clearer still, Mr Ramavhunga stated that the bank adhered to the strict principles of sound corporate governance when they granted President Zuma his loan, and added “…like any financial institution the bank lends to qualifying individuals only”.

Suddenly, President Zuma has paid back the Nkandla money in full.

And then, amid calls from opposition parties requesting VSB Bank to release documents to prove that Pres Zuma acquired the loan on merit, Ramavhunga coolly replied VSB would not release the requested information as they have to abide by the bank’s privacy regulations.

He simply said: “…like any other responsible financial institution, we will not release information about the business dealings of our clients under any circumstances.”

The clincher came in his answer to questions of how the bank could have assisted Pres. Zuma, as he is not a Venda resident. Ramavhunga said the VSB focuses specifically on traditional communities. The bank flourishes in the market we (read those living within the formal economic and financial construct) regard as falling outside the (excuse the pun) traditional mortgage lending environment.

It’s quite simple, VSB is one of the few financial institutions that offers home loans in respect of land owned by traditional authorities, thereby setting a precedent that should make the ‘big four’ blush.

Following that announcement, the opposition has scrambled to get details of the loan, but VSB is having none of it. The debt is paid, and according to the bank, legitimately so.

In our estimation this is a truly laudable outcome to a hard-fought contest and should, with the many larger challenges facing our president and his cabinet, be buried once and for all.

Required medicine

More importantly, the advent of the VSB Mutual Bank into the public arena may just be the medicine necessary to stimulate the moribund rural property markets. It is clear that the big traditional finance houses are not taking a lead in this arena.

If correctly positioned, this initiative could provide the flow of money the rural poor have been clamouring for to turn their homes into high-value assets from which to leverage economic development.

By way of comparison, the average valuation of a property in the Salt River and Woodstock areas of Cape Town has increased from roughly R750 000 in 2006 to R1 250 000 in 2015. According to Cape Town City’s valuation roll, the total value of all rateable properties in the metro increased from R900 billion in 2012 to R1,1 trillion in 2015.

When that kind of an economic tsunami starts washing into our rural backwaters, it may just be the impetus needed to start the economic miracle we so desperately need at the source points of our unemployment, youth misery and poverty.

by Eve van Basten

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