The banks' new discrimination

There is very little doubt in my mind that South African society is as much divided today as it was 15, 50 or even a 150 years ago.

We, as South Africans, mostly pay lip service to reconciliation as we set up equality structures and equality courts.

We continue to discriminate against each other even though we have laws that outlaw hate speech, we have corporate governance programmes to ensure economic upliftment and we have affirmative action initiatives.

We also have completely inter-racial schools where children couldn't care less about colour and we have a constitution that is perhaps the most enlightened in the world, particularly when it comes to racial discrimination.

And yet we remain a deeply divided society.

And those divisions are so great that they extend to widespread incidents of xenophobia. Wild people turning on the "foreigners" and killing them, driving them out of the townships and suburbs, their attitudes mirroring a racial hatred that is clearly deeply rooted.

One of my readers, whom I'll refer to as Mrs X because she wishes to remain anonymous, sent me an intriguing letter last week that seems to emphasise just how deep some of these divisions are. It also illustrates that there is a very fine dividing line between guidance and advice and out-and-out interference when it comes to our banking community.

Here's Mrs X story.

She and her husband are highly skilled and highly specialised professionals working in Cape Town and earning a lot of money between them. Although Mrs X didn't say so, my guess is that they are a youngish couple in the early- or mid-thirties who are building a life for themselves and their family in South Africa.

They already own a suburban property and have sufficient income to pay off their bond at double or sometimes triple the monthly instalment. Like sensible investors who believe that the property market represents really good value at this point in time, they decided to find a small, affordable investment property.

The intention was to put up at least 25% of the purchase price, rent out the flat and pay off the bond as rapidly as possible. Then, they planned to maintain the property and rent it out to earn a small income until they decided to sell the flat and make a nice profit on the capital invested.

As we all know, the Cape Town property market is highly priced and rental properties there are in constant demand. So Mrs X found herself a 43sqm flat in the central business district of Cape Town – in an area that is surrounded by a number of refurbished buildings – and offered to buy it for R340k.

By Cape Town standards, that's a bargain because it's costing less than R8k per sqm.

Given the couple's high earning power and strong credit rating, three banks initially approved the bond – pending an assessment by their own valuations departments.

But once they'd inspected the property, their attitudes changed. All three banks withdrew their bond finance and declined her investment.

She was furious and, in terms of the National Credit Act (NCA), started demanding answers. Banks nowadays cannot refuse to tell you why they have declined your request for funds if you insist on knowing the reasons for their decision. So after much angry investigation, Mrs X got to the bottom of the story.

Initially she was told that the lack of on-site parking was the reason for the application for bond finance being turned down. She pointed out, quite rightly, that 40sqm apartments in Clifton have no on-site parking and sell for millions. The lack of parking was an excuse that just didn't wash.

Eventually, the truth came out – the banks did find value the property and valued it at more than the price she had offered for it. The real problem was the valuators qualified their valuations with remarks about the "quality and nationality of some of the tenants in the building".

"What did you say," you might ask me. "The banks refused to finance the property on the basis of the quality and nationality of some of the tenants in the building?"

Predictably, Mrs X and her husband were furious. As they point out in their note to me, it is their money, their investment and they have the cash resources to pay the bond every month whether there is a tenant in the property or not.

But I'm much more outraged by the fact that banks can make a financial decision on the basis of the "quality and nationality" of the tenants. How dare they do so in a society such as ours? A society that is supposedly enlightened, that is supposedly reconciling its racial differences after years and years of abuses.

There is also an undertone, in the valuators' remarks, of xenophobia – the "nationality" of some tenants implies that these people are probably foreigners from Nigeria, Ghana, Zimbabwe or any other African country to the north of us.

They're unlikely to be Russians, Italians, Brits or Americans because these chaps are welcomed here and are not branded, immediately, as being evil, drug-dealing criminals who have a hand in human trafficking, abalone poaching, rhino horn sales or anything else.

But Nigerians, Ghanaians and any other Africans are branded that way. Branded, unfairly and unjustly, as being a morally corrupt bunch of thieves and criminals. Well, they are not.

I've been to these countries and I'm honestly convinced that the ratio between criminals and moral citizens is probably much the same as anywhere else in the world. In fact, the Nigerians, Zimbabweans and Ghanaians I have come across are mostly more upstanding citizens than many of South Africa's own residents.

Mrs X points out, quite rightly, that by refusing to grant bond finance on the basis of the quality and nationality of some of the tenants, the banks are actually feeding the cycle of degradation within Cape Town's central business district too.

Poor people live in the Cape Town's CBD at present. Why? Because rich people don't want to live there anymore. But people who are poor are not necessarily immoral, are not naturally criminals, human traffickers, drug dealers or abalone poachers.

They are just poor.

The banks, in deciding whether or not to grant bond finance, have to consider the investment that they are underwriting and whether they will be able to protect that investment in the case of a forced sale at some time in the future.

To them, poor people do not represent a good risk. Moreover, they cannot seem to see that with time, many "poor" people do become less poor too. For me there is a fine line between "guidance or advice" and "interference" from banks.

And that line must not be crossed. Banks can offer guidance and advice, but they do not have the right to interfere in a transaction based on some racial or xenophobic prejudice.

I guess everyone needs to understand that.

Mrs X's question is just as valid: What is the bank's role in the revitalisation of the CBD?

Well, Mrs X, my own opinion is that banks will do little or nothing to assist anyone investing in revitalising, rejuvenating or uplifting a suburb such as the CBD.

I also think that the banks' views are short-sighted and stupid.

So what do you do, Mrs X?

I think you should immediately approach one of the CBD development funds that are specifically geared to revamping the CBDs of all SA's cities. I'm sure that Cape Town will have an organisation similar to the Johannesburg Development Agency (JDA).

Approach them and see what they can do for you. See how they can help because these agencies are not short-sighted and stupid. They believe in the city, the country and its people. And they want to make the country better – at every level.

The banks want profits – no more and no less.

Bear in mind that many of the people within each of the banks are just as bigoted as the rest of this troubled South African society of ours. And it is these people who are making the decisions that affect you, Mrs X.

Personally, I would love to name and shame those banks and those valuators who based their investment decision on the quality and nationality of the tenants in the building in question.

For they are perpetuating real iniquity.

*Hartdegen writes a regular column for Property24.com. The content of his columns constitutes his personal opinion and doesn't pretend to be facts or advice. Contact him at paddy@neomail.co.za.

Readers' Comments Have a comment about this article? Email us now.

I have been a client with, probably the biggest in the country, for thirty five years and their petulance and arrogance over the past few years is shocking. I recently had the misfortune of sitting across the table from one of their employees, and found his attitude nothing short of condescending.

Perhaps the policy makers should explain whether this the prescribed behaviour.

I may sound like a profit of doom but the time will come, as the anger builds, that " profit above all else" is going to come back and bite the greedy. No wonder the nationalisation issue is, once again rearing it's head. – Derek Cooper

It's an interesting article. I would have liked to see reader's comments below the article. As I do not particularly like banks, I do believe there are two sides to this story. If I were this investor I would be grateful for the banks information (which she may not have known) and move on to something better. I can't say I consider the banks act racist in totality, rather protective. – Gibran Wessels

I am a foreign national working in the country and i have had first hand experience of this. I tried applying for a home loan and despite being a client with one of the biggest banks they like all the other major banks except one rejected my application, citing always the reason that I am a foreigner, without any reference to affordability.

It seems this country practises xenophobia at all levels:

1. whether be it the general masses who would like to kill their fellow black African brothers but are happy to let a white British, America, Russian etc. go ahead living freely 2. the banks or other institutions that continue to treat foreigners as second-class human beings – Anonymous

Always consider all the facts before coming to a conclusion. The banks in SA reported R30billion losses in bad debts in 2008 and 2009 will be similar. They have learnt a few lessons and are trying to tell you something by declining the loan. Remember, banks only makes profits if they loan money, not by sitting on it. So maybe, just maybe, this bank was acting in your interest as well. – Anonymous

I find your article extremely refreshing that at last we question a decision and stand by our right to interact, do business in South Africa.

I have had the opportunity to visit a new suburb in Rosslyn-Pretoria North and was pleasantly surprised to see the diversity of nationality and colour who have bought/are renting homes. The issue is price and affordability. Those who could only afford 'starter homes' have done so and others, already within 12 months, have extended. I was surprised to see a spec home built by the developer for a client to the full extent of the property rights and definitely over the general market value for the area.

Regarding the financial institutions - I would suggest that they get the originators back on board rather than allow their, the financial institutions, 'staff' from qualifying the purchaser.

My experience is visit the country- there are some great things happening. - Eric Q

I am subsequently closing all my accounts with FNB and am now informed that in order to close my existing home loan account (which has been at a nil balance for the past two years and still has a bond of R250 000 registered – which I wanted to resurrect for funds towards the new property) I will have to notify the loans department, who will appoint an attorney to close the account. This will cost me a minimum of R1 500.00.

I could simply leave the account as it is and pretend it does not exist, but the bank is bound to find some costs, for which they will bill me, and of course they still hold the title deeds for the property – so it is a lose, lose situation for me. My husband says that if ever he leaves this country, it won't be because of the political situation ( we are both passionate South Africans and wouldn't dream of leaving our beloved SA), it will be because of the banks! Don't know if banking is any different in other countries though! - Charlotte Anderson

It just worries me that all three banks acted in the same way and gave the same reasons. - Henry Norris

Although many of us find the banks irrational in their approach to certain applications we also have to be realistic.

If any property is being badly managed and maintained by the Body Corporate, regardless of who the occupants and owners are, there is a genuine deterioration of the property and consequently a loss of value. I would not like to invest in any asset which I see declining in value, unless I take over the whole block and manage it well.

Some blocks of flats in Sunnyside, Pretoria are well maintained while others are in a state of disrepair. Where would you invest? - Helen Henning