Concerns exist that the new national credit act, which is set to come into full effect from June of this year, will have an adverse influence on the South African property industry.

In fact, the anticipation of the new act has already been cited as a contributing factor to the dampened growth in house prices – with a decelerated growth of single digits as opposed to the double digits experienced in the first six months of 2006.

Speculation exists that the stringent credit profiling required under the new Act will slow home sales as banks begin to implement the provisions of the Act and check on the overall credit exposure of all borrowers before they can approve any new home loans.

Home sellers could possibly wait as long as 60 days to find out if a potential buyer is approved for a home loan.

Additionally, fears exist amongst property developers that financial institutions will be setting unreasonably strict requirements for applicants to qualify for project finance.

Linda Jordaan, Director of Herold Gie Attorneys and a property law specialist, says that the National Credit Regulator (NCR), a regulatory body that has been established to enforce the new Act, has given its assurances that this will not be the case.

“According to the NCR, the only reason that applications from property developers would be rejected is if there is over-indebtedness or the project appears not to be viable.  One of the main purposes of the Act is to remove discrimination of any kind from the process of credit allocation and if developers or other consumers feel that unfair requirements are being set, or that credit contracts are trying to circumvent the new legislation, they can report it to the NCR.”

Jordaan further explained that the new National Credit Act introduces new rights for consumers, as well as measures that allow them to make informed decisions before purchasing on credit.

“The Act basically strives to improve access to credit for consumers at a reasonable rate from a reputable credit provider, to increase the availability of finance at a reasonable cost, to ensure that an increased access to credit does not lead to over indebtedness, to educate consumers about credit, to protect consumers and deal with unacceptable practices and to enforce the regulations set out there under.”

“The new act also places a greater responsibility on credit providers to refuse to give consumers credit if they cannot afford it.  Credit providers must ensure that they do not enter into a credit agreement without first taking reasonable steps to assess the consumers general understanding and appreciation of the risks and costs of the proposed credit.  They also need to assess the proposed consumers debt payment history and their existing financial means, prospects and obligations before going further.”

“This is the most far-reaching consumer legislation to become effective in years,” says Jordaan.  “The National Credit Act sets a framework for every type of credit transaction, from micro loans to home loans, from overdrafts to furniture finance.  Consumers, credit bureaus and providers of credit, ranging from micro lenders to banks, all need to get to grips with the new Act.”

“The new National Credit Act will undoubtedly facilitate the creation of a fair, balanced and transparent credit market.  Besides protecting the consumer from unscrupulous moneylenders, it will help the consumer be more responsible about using credit.”

Jordaan concludes that the restrictions to prevent the reckless granting of credit are to be welcomed as they will bring a measure of protection to property owners, more particularly those at the lower end of the property market and those who have not enjoyed much in the way of educational opportunities and who may find easy credit very tempting.