Protea Glen: Boom and bust in the suburbs
Protea Glen, a suburb of northern Soweto, is experiencing a boom. Buzzing new shopping centres cater to up-and-coming professionals and shiny cars cruise down streets lined with new or renovated houses, each one sporting a satellite dish. Life for Protea Glen's residents is good — or so it would seem.
But the outward signs of upward mobility mask the fact that the suburb is home to the highest number of repossessions in the country. There are an estimated 17 000 houses, of which more than 13 000 are mortgaged. Still, posters advertising houses for sale are abound.
Banks appear unperturbed by the number of defaults and are actively extending financing to homeowners. Nicholas Nkosi, head of affordable housing at Standard Bank, said Protea Glen did not appear to stand out when it came to mortgage defaults. In fact, the bank was putting new financing into the market and encouraging development in the area.
According to Lightstone, which provides comprehensive data on property, vehicle and business assets, Protea Glen was at the top of the list for the number of sales in execution in 2012 — public auctions held by a sheriff of the court to recover money that has not been repaid on a home loan. There were 175. The Pretoria suburb of Sunnyside was a distant second with 80 sales in execution.
Yet these alarming figures mark an improvement in Protea Glen — between 2003 and 2010, 2 905 sales in execution were recorded, an average of 360 properties a year.
To put this in perspective, there were 279 in the whole of Limpopo province and 208 in the Northern Cape.
In 2008 the South African Human Rights Commission said that in Protea Glen Nedbank reported a 10% to 15% default rate; Absa reported a 34% higher rate than its national average of 12%; FNB reported a 30% default rate; and Standard Bank a 10% default rate.
But, in the greater scheme of things, the number of repossessions may not be that shocking after all. The 175 repossessions in Protea Glen in 2012 constitutes just 1% of the total homeownership. In Henley on Klip, a smaller area where there are only 2 000 privately owned homes, the 40 repossessions in 2012 account for 2% of the houses.
"Taking the size of the residential market of each suburb into account by looking at SIE [sales in execution] notices as a ratio of privately owned stock ... Henley on Klip is doing worse than Protea Glen," said Andrew Watts, managing director of Lightstone.
Marius Marais, chief executive of FNB, agrees, saying a 1% repossesssion rate is on the lower side of the market.
Standard Bank, which finances one in three "affordable" houses in South Africa and has the biggest share of the market, said that "recent experience in Protea Glen, as an area, does not perform out of line to the broader affordable housing portfolio [that is, lending to households with incomes of less than R18 000]."
Stephen Mohjane, the owner of Classic Crown Properties and a sales agent, said repossessions were more common two or three years ago when retrenchments were rife. "I was selling four or five repossessed houses a month," he said.
But last year Mohjane sold only two mandated properties. "They are expensive," he said, noting that property prices in the area had grown exponentially. "When I started to sell in 2002, properties were going at R50 000; today you will pay R350 000 for 45m2."
He said that one thing he had noticed was that homeowners who were facing foreclosure were not aware that they could sell their properties before they were repossessed. "If they are defaulting, they don't know they can get rid of the property."
Houses in Protea Glen are relatively small so homeowners often extend them. Many appear half- finished and unpainted structures are a common sight. Norman Ramashia, owner of Norman's Material Supplies opposite the Protea Glen mall, is familiar with stories about repossessions in the area.
"It's a big problem," he said. "These young people are getting new jobs and making their own living but they need their own styles. You need to renovate and you need a wall because you will have a car."
Ninety percent of the residents in the area have cars, he said.
Although there are more than six furniture retailers in the mall alone, many homeowners will travel much further for interior décor. "These youngsters like fancy things, so they go to Sandton."
Ramashia said the prevalence of divorce among the residents is to blame for many defaults in bond repayments and subsequent repossession.
A salon owner in the neighbouring suburb of Glenridge, who asked not to be named, blamed the fierce competition among the young professionals living in Protea Glen for the financial trouble. He said residents continually try to outdo each other with better houses, cars and clothes.
Themba Mtambo, a member of the Protea Glen Estate's body corporate, agreed. "There is a trend with people buying certain cars, a trend even for a certain kind of beer."
But Mtambo said he has heard little about defaults on bond repayments in the estate and that levies are up to date.
Absa said: "As informed by industry norms and patterns, defaults are usually underpinned by economic factors such as the closure or large reduction of an industry or key employer. We are not aware of any such factors particularly impacting Protea Glen."
A research project conducted in the area — Measuring Non-Payment Behaviour in Low-income Homeowners in South Africa — worked on the premise that homeowners are more likely to default on mortgage repayments if borrower education, particularly with low-income homeowners, is inadequate.
The study was conducted by Vuyisani Moss, a marketing analyst at the National Housing Finance Corporation.
The study collected data from more than 100 homeowners in the area and showed that the majority (47%) of the respondents were between the ages of 25 and 35 and most had a matric, degree or diploma.
About 50% of the respondents were employed by the government and 40% worked in the private sector. In 86% of households, the joint income was between R4 501 and R12 000 a month. Of these, about 41% were earning between R7 000 and R12 000 a month.
The study found that typically a property would be bonded for about R365 000 at an interest rate of 12% over 20 years, with monthly repayments of R3 099. Typically, it would be a three-bedroom, one-bathroom 70m2 house on a 270m2 stand.
Lack of education
Moss found that many of the study's assumptions were incorrect. There was no correlation between the education level of a respondent and his or her propensity to default; there was no association between interest rate increases and defaults; and there was no relationship between lower-income earners and non-payment.
But the research did suggest that non-payment behaviour is influenced by a financier's failure to educate borrowers.
Moss said the banks were offering borrower education to comply with the National Credit Act, which came into effect in 2007.
The empirical data suggests that the majority (64%) of households defaulted on their mortgage loan repayments, with 30% attributing their non-payment behaviour to the lack of borrower education. Of those homeowners who defaulted, 19.2% had a poor relationship with the lender, those with a good relationship had a default rate of 14.5% and those with a very good relationship had a default rate of only 10%.
The study also found that homeowners with higher income were in fact more likely to default on their mortgage repayments.
"It was very interesting and exciting to me and I needed to go deeper," Moss said.
What he found was that bigger earners seemed to be more indebted. When applying for a mortgage, they would also often be presented with the opportunity to acquire a credit card or an unsecured loan.
"Most of us high-income earners commit ourselves overly when it comes to credit contracts."
Moss said his research also revealed that some homeowners resented the government's breaking-new-ground, low-cost housing. The rents and bonds were subsidised and often the units were the same size or bigger than many houses in Protea Glen.
Moss said a small group of residents was upset about this and defaulted deliberately without fully understanding the consequences.