Affordable home loans boost rural development
27 June 2018 | Web Article Number: ME201810578
MANY aspire to owning a home, a place to call their own and a place to go to when it’s time to put down their tools. But for those in rural areas, achieving this can be a challenge.
Commercial banks don’t provide home loans in areas where the land belongs to a tribal trust because occupants only have leasehold titles (previously Permission to Occupy) and do not own the land. Therefore, banks cannot use the land as security should the borrower default on the loan.
In KwaZulu-Natal as much as 60% falls under the Ingonyama Trust Board.
Ithala SOC Limited has observed a trend over the years in KwaZulu-Natal of people who have left their place of birth to work and create wealth elsewhere to return home when they retire. People prepare in advance for their journey home by building a house for themselves or renovating a family home.
“In order to fund these homes people were either using their own cash or obtaining unsecured loans of R150 000 over a 10- year period at rates of prime plus 12% and this was creating some of the debt problems we currently see,” said Shane Moodley, Ithala SOC Limited’s Divisional Executive, Segments.
Against this background, Ithala has put in place processes that work with the Ingonyama Trust to expedite the acquisition of a 40 to 99 -year lease for a residential property and a loan of up to R500 000 over a 20-year period to make it more affordable.
The process of getting approval to build on tribal trust land is traditional, says Moodley. People have to get approval from their Inkosi and take the relevant documents to the Ingonyama Trust which attends to applications during their monthly meetings.
Ithala has also taken the lenders of unsecured loans head-on by providing rural home building loans at a rate that is at least 10% cheaper.
Another current trend in KZN is the movement of people away from urban areas to townships to avoid the associated costs such as rates.
Again, many of these people are getting unsecured loans because of the onerous bank requirements to qualify for a home loan. The demand to build in these areas is high and it is a matter of structuring the finance to meet the demand.
There is an enormous demand to build in rural and township areas, said Moodley. By providing the funding Ithala is also stimulating the building sector in these areas. Ithala has, in partnership with the National Home Builders Registration Council (NHBRC), undertaken roadshows to rural areas talking to contractors about quality and the need to be registered. This dovetails with government’s plan of revitalization of rural areas, which has a number of government initiatives to ensure that money stays in the areas to create rural economies.
The demand has also given rise to home-grown developers. Moodley cited the example of a developer on the South Coast which had pre-qualified clients and then brought them to Ithala to approve loans. The surprising part was that the development had sold out in a week to predominantly employees of the SA Police, Transnet, Sasol, and teachers.
Others who want to be developers are also approaching Ithala. “If a person comes to us and says ‘I build houses’, we will connect them with the NHBRC because we are in the business of building businesses. We will partner with our parent company Ithala Development Finance Corporation where there is potential to create a development loan, so he can build a business,” said Moodley
A current distribution network of 39 branches in KZN provides convenient transacting facilities. Ithala offers a comprehensive portfolio of corporate and personal banking solutions.