When it comes to commercial property, 40% of the purchase price must be raised by the borrower, with the remaining 60% being loaned by a financial institution. Unless they are financially strong, investors and property owners are often unable to come up with the required 40% deposit.
A change in the banking landscape in South Africa has seen the banks shift from focusing on interest income to non-interest income, with a strong focus on unsecured lending over the past couple of years.
However, cracks are starting to show in the unsecured lending arena due to an increase in bad debt and a slowdown in consumer household spending, which will put further strain on the banking and commercial property sector.
This is according to Gary Palmer, CEO of Paragon Lending Solutions, who says that the trend over the past four years has seen the banks make a push into more profitable non-interest income due to not making sufficient earnings from traditional mortgage bonds. “A decrease in interest rates, and the implementation of new lending regulations, such as Basel III, caused local banks to focus on more profitable non-interest income with increased involvement in the recovery process, which is why there has been a sharp decline in mortgage lending and a boom in unsecured credit.”
Read more at sacommercialpropnews.co.za