By Pauline Larsen 

By turning down a bond for a high-profile client, a bank exposes poor assessment system      
  
Property professional Kura Chihota put in an offer of R950 000 on an eight-unit building in Johannesburg's Windsor West. Though the area has suffered overcrowding and urban decay in recent years, he felt it was ripe for regeneration. 

"The offer was conditional on finance being granted," says Chihota.  So he turned to Standard Bank, only to be turned down.  "The bank felt the total value was just R240 000, based on a rent of R1 600/unit/year and a 20% vacancy rate," he says.

The capitalisation rate applied was 18%.  Estate agent Chris Breet of Due Season property group says this valuation is laughable, considering the property and the applicant.  Chihota, too, thought the assessment was "a little odd", especially because the average price for property in Windsor West is higher. 

On inquiry, a bank credit manager said that "while rentals could be increased, such increases often come as a result of allowing higher density occupancy of units, as is our experience in the area". 

In other words, the bank was concerned about slum-lording. That Chihota is Zimbabwean seems to have been cause for concern, too.  Standard Bank home loans division director Leon Barnard says he would be disappointed if one of the bank's employees had made such a comment. Standard Bank, he says, has always prided itself on a high level of customer service. 

Chihota is the leasing head of a national property services company and has more than a decade of local property experience under his belt. Though a Zimbabwean, he studied at the University of the Witwatersrand and completed his undergraduate studies. He is now studying for an MBA at De Montfort. 

The building in question was sold in 2002 for R550 000. It had been sold in 2000 for R205 000, according to the SA Property Transfer Guide.  Data from the guide also shows that sectional title units in Windsor West average R212 000, while full-title properties, from apartment blocks to houses, sell for around R708 000. The highest reported sale price for a full-title property in 2004 was R4m.  The rejection of Chihota's bond application highlights flawed credit decisions by banks - especially in areas considered risky.

Though the vaunted scoring systems of banks are supposed to be objective, it seems subjectivity can creep in.  Standard Bank is refreshingly frank in its response. "In this case, we made an unfortunate error in that we assessed only the individual unit and not the entire complex," says Barnard. "In addition, we failed to pursue the discussion with our customer; this was most regrettable. Mr Chihota, in our view, has all the required credentials." 

The upshot is that Chihota has received his finance, or at least 80% of the value of the building, which is the bank's standard policy for rental blocks.  But his story is bound to encourage bank clients who believe their finance applications have been unfairly turned down to fight for satisfactory reasons.  "We appreciate this matter being brought to our attention," says Barnard. "We need to be told when we don't meet customer expectations."