Wording – Chrissie JohnsonConsumer confidence plays a pivotal role in shaping the property market and during the past few months OWN Finance has seen a spike in applications to finance building bonds on the North Coast of KwaZulu-Natal.
“In our opinion” says Gail Becker, Founding Director, Own Property Finance Specialists “ this uptick indicates a more positive SA sentiment. People are investing not only in property but in building their forever homes. We are also seeing investors across all demographics nationally – reflecting that there is positive transformation and income distribution across our diverse population.”
Statistically an increase in land sales signals optimism about the future prospects of an area among developers, investors, and potential homeowners. Investments in infrastructure projects like roads, utilities, and public facilities can also increase the attractiveness of an area for residential development. These developments often precede or accompany an increase in land sales.
Along the scenic North Coast there is ongoing investment in the infrastructure indicating a positive outlook for long-term growth . Many estates, particularly the newer developments offer appealing ‘land-and-build’ opportunities – whether for a holiday getaway or permanent residence. Several of the “more recently developed estates like Zululami and Seaton have experienced exceptional growth in land sales over the past two years, with many of the sites offering sea views and no transfer duty. Lee-Anne Grassie from Local Real Estate has sold several sites recently and comments on Seaton’s success. “Seaton Estate’s success continues to build momentum, highlighted by the recent launch of Precincts E and F, with more than 50% of the stands in Precinct F selling within the first month. The estate’s appeal lies in its stunning landscape, prime beachfront location along the North Coast, easy beach access, and outstanding amenities. Buyers are confident that once fully developed, Seaton Estate will become one of the premier estates in the region.”
Another contributing factor for the increase in vacant land sales could be because it is cheaper and more efficient to build a new green home than to retrofit an old home to be energy and/or water efficient. Additionally, purchasers do not want to pay transfer fees on the entire property price and then have to renovate to get what they really want. In last month’s (August) newsletter Local Real Estate’s Managing Director Graham White discussed this aspect in his article “To Build or To Buy? ” Rory Anderson, who has been selling Property for over 9 years in Simbithi Eco Estate, achieving the top sales position for 5 consecutive years concurs. “I have definitely seen prices reduce recently in well-established estates like Simbithi Eco Estate. Land that was not selling for over 2 years has now caught Buyers’ attention. Compelling factors include the levelling of the vacant land prices, the fact that the homes are now relatively old and need modernizing which is costly and many people also want to be within a well-established estate with not a lot of building around them”.
When purchasing vacant land or wanting to apply for a building bond Becker from Own Property Finance advises getting professional advice and information upfront both to manage expectations and to understand the required cashflow for the building process. “Banks deem Vacant Land and Building Bonds as a higher risk asset than an already built home. Currently some of the banks are not financing Vacant Land only, but all of the banks will consider a building bond” emphasises Becker.
Cindy Kirchner Property Finance Specialist, Own Property Finance Specialists adds “During the past few months in the North Coast area I have definitely had a marked increase in building bond applications. The level of intake was on a par for 2022 and 2023, but this year up until the end of September I have already submitted more Building Bond applications. In my personal capacity this has amounted to 120% more compared with that last two years. I have also noticed that clients are opting for the Building Bond application since it helps calculate the future budget and plans for the entire project. In this process clients are fully equipped with the knowledge required for a building loan and the building loan payment process after registration.”
“To throw another factor in” adds Becker “it is also possible to utilising existing facilities or alternative properties as security for a facility that has less restrictions than a building bond. Because there are so many variables that can be utilised for financing land or a build, it is exceptionally important for us to understand the client’s current overall financial position and future finance requirements. Knowing this allows us to discuss all finance options available” concludes Becker.
As a general overview, Buyers should be aware of the following
For vacant land:
- Generally, the banks will finance 50% of the purchase price over a shorter term (24-120 months), so buyers will need a substantial deposit.
- The banks may consider lending more than 50% of the purchase price but this is determined on a case-by-case basis and depends on the buyer financial position as well as the asset - where the vacant land is, demand for the land, sales concluded etc.
For building bonds:
- Banks will either convert an existing vacant land facility to a building bond OR
- They will approve a building bond when the client is purchasing the vacant land and has all the required building docs to assess the build and determine the On-Completion value of the property.
- The on-completion value is determined by the ‘Cost to Complete’.
- Cost to complete is the cost of the vacant land plus the cost of the build.
- The cost of the build excludes the professional fees, architect, land surveyor, engineer etc which the client needs to pay for upfront
- If you deviate from the original building contract, specs and finishes and bill of quantities they originally based their building bond approval on – you will need to fund the difference
What is required by the banks to assess the On-Completion Value?
- Final Plans
- Signed Building Contract
- Detailed list of specs and finishes
- Bill of Quantities
- NHBRC Certificate for Builder
- Offer to Purchase for Land (Fully completed and signed by both Seller and Buyer). A minimum of one witness required to verify and validate Seller and Buyer signatures.
- NHBRC Enrolment Certificate for Property – If possible.
What is required by the bank financing the build prior to Bond Registration?
- Approved plans (stamped by the municipality)
- Waiver of Builders
- Contractor’s All Risk policy (CAR):
- to include Bank’s interest’s
- to include SASRIA and injury on duty
- minimum amount insured to be equivalent to the building contract and for the full duration of the construction period
- to include the property description
- A copy of the structural engineer’s professional indemnity
Based on the above, it's clear this is a complex process. A Property Finance Specialist offers this valuable service, submitting your bond application to all banks, including yours. You won't be charged for their help—they're paid by the bank for presenting your case after assessing the risks.
As more people seek the opportunity to build homes, it showcases their desire to create spaces that offer a fulfilling lifestyle in a vibrant and evolving area like the North Coast. Here the combination of natural beauty, infrastructure development, and community growth creates a platform for individuals to thrive and enjoy the rich quality of life that this area offers.
Local Real Estate would like to acknowledge the much-valued assistance provided by Own Property Finance Company in compiling this article.
This article is for general information only and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your adviser for specific and detailed advice. Errors and omissions excepted (E&OE)