Nca- Bringing Sa To Its Knees?

Is the NCA going to bring the country to its knees? Karen Wheller of the Property Investor Network takes a look at the big picture.

It has been a whole month and a half since the NCA has taken its' full force and affect and the horror stories are starting to pour in. I realize that the whole picture of the NCA is not fully clear yet, but the effects have started to take shape.

Some comments, stories and situations have brought to the sad - and hopefully wrong - conclusion that the NCA has the full capability to bring the country to its knees. Let's hope we are wrong.

Estate agents are complaining that their bonds are not being approved. Reports show that in some cases only 10% of the normal amount of business is being approved, while others report a success rate of around 30%. That is a reduction in income of a minimum of 70% for estate agents, as not many people buy cash deals these days.

Some bond applications from exemplary buyers have been rejected, and both agents and mortgage originators are shocked at these outcomes. Applicants that have a squeaky-clean credit history and the affordability of the 30%-to-income ratio have been rejected. Others with the same clean credit history have been asked for to provide sureties, while in the past they have been able to obtain credit without a problem.

Juristic entities with over one million rands in assets have been treated exactly the same as natural persons, when the act says that the NCA does not apply to juristic entities and to assets over 1 million.

I am currently selling an old car and had the opportunity to speak to a few car dealers. That is when I got the bigger picture of the NCA, to my own shock. Dealers are complaining that their June sales are down by 50% and more, as finance applications are just not being approved right now. Dealers are no longer buying used cars and in some cases are even rejecting trade-ins as they now have more stock than they can sell to buyers who cannot get finance.

A while ago on the Property Investor Network forum I wrote that "all hell will break loose temporarily", but I didn't think of the situation in big picture terms, I was only referring to property investing. After my chats with car sales people and the stories that come through our estate agency affairs, I realized that the problem is far more complicated than it seems at first glance.

If car sales are going down by large percentages, then furniture sales must drop and many other items that people traditionally purchase on credit. Where does that leave the economy? How many stores, shops and businesses will be affected? How long will it be before they are no longer able to keep operating? How many people will be retrenched made redundant due to the lower revenues? How will this credit lending affect the banks' revenues if they can't meet their targets? How will this affect the shares of listed companies if their projected revenues are reduced? And if it affects their shares how will this affect the stock market? Has the NCA shrunk the purchasing power in the economy? And if so, by how much? These questions are mere domino affect questions, how one thing may influence another in the economy.

I don't believe it takes rocket science to identify that we may just have a major problem to deal with. I just don't think anyone knows the size of the problem, for how long and what will be the overall after effect?

Though I don't think there are any real conclusive answers now, as there are more questions than answers, the effects are starting to show their ugly head and it may take some time until someone can estimate the damage. Maybe it won't be that bad and business people with far reduced revenues are just over reacting, but if it will be worse than estimated, who is going to do the damage control?

Tracey Sandilands, Editor of Property24, agrees with Karen Wheller: "We have had floods of emails from users telling of situations where credit applications have been rejected on the grounds of affordability because the clerk they are dealing with adds the new instalment to the existing instalment, without understanding that the new instalment will in fact replace the existing one.

"There are also buyers that have sold their house and the new owner has obtained a bond before 1 June and is ready to move in, while their own bond application on the house they are buying has been rejected (often because the finance house adds the two bonds together which makes the payment unaffordable). They are now in a position where they have sold one house but cannot buy another, and are forced to find a property to rent, thereby losing their foothold in the market."
(Property24, 2007/07/13 )

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