While the residential real estate industry is in crisis as house sales remain suspended due to the lockdown, the impact on banks' mortgage books is likely to emerge only in the months ahead.

The country's largest estate agency groups have been urging the government to open up the residential market. As it stands they can only take clients to houses when the country moves to level 2 lockdown restrictions, meaning it is almost impossible to sell properties. And if distressed homeowners looking to offload their houses can't do so, it will affect banks because these properties will remain on their books for a lot longer than they would like.

Mahin Dissanayake, Fitch's senior director of banks for Africa and the Middle East, says SA's banking sector, particularly the big four - Standard Bank, FNB, Nedbank and Absa - entered the crisis in a "position of strength", having outperformed in a tough operating environment for years.

"They're well managed, they've got strong risk management, strong businesses, strong franchises, and they command leading market shares."

But a sharp rise in unemployment will be a risk factor for banks' mortgage books.

The effects ofthe lockdownon agencieshave beenimmediateand severe

"When unemployment rises fast, people may not be able to afford their mortgages. That is a risk to asset quality for the banks if people start defaulting on their mortgages," says Dissanayake.

"We're not seeing that stress just yet. Typically, when people's finances are under stress the last thing they will default on is their mortgage because one, where are you going to live, and two, there's no social safety net in SA like in the UK."

He says that when people do default on mortgages these tend to be loans held on investment properties. "In SA the residential mortgage books are owner-occupier books primarily."

Debt relief measures offered by banks and interest rate cuts should also help consumers over the next few months, he says.

But residential mortgages form a large part of banks' loan books, so any "severe stress in that segment" over an extended period of time will place banks under pressure.

Anchor Group analyst Mike Gresty says that "because of the long-term nature of the loan books, the short-term effects in terms of what happens to the books is negligible".

Gresty says the bigger issue is credit stress, when people who are in trouble need to sell their property but can't.

Wayne McCurrie, a portfolio manager at FNB, says banks have been helped by having a lot of annuity income on their books.

"It's not like a shop where if you don't sell every day you don't make profits. If banks don't do any new loans for three to four months, it doesn't affect profits massively because their loan books will have a duration of six to eight years, and they earn interest and fees on that."

McCurrie says the biggest risk for banks in this environment is bad debt.

For SA's estate agencies, however, the effects of the lockdown have been immediate and severe.

As it now stands, deeds offices and conveyancers have opened up under level 4 restrictions, but Samuel Seeff, chair of Seeff Properties, says this is pointless if agents can only physically show people homes under level 2.

Agents are allowed to operate online, but it is very difficult to sell a property that hasn't been physically seen.

"There are four legs to the table: the deeds offices, the home-loan divisions of banks, conveyancers and real estate agencies. The other three cannot operate without real estate operating," says Seeff, who is also a director of the Real Estate Business Owners of SA (Rebosa).

He says on average there are about 12,000 to 13,000 transfers a month across the real estate industry when it operates normally.

"The question then comes up, what happens in June when the industry hasn't sold anything in April or May? What's the point of the deeds office and conveyancers being open?"


The percentage of businesses that remain closed or aren’t allowed to operate fully during level 4 of lockdown

Seeff says a house viewing or an offer to purchase is always a "one-on-one engagement", so it can easily be controlled with hygiene measures.

He says the newly formed National Property Practitioners Council, of which Rebosa is a founding member, has made a formal submission to the department of trade & industry.

Andrew Golding, CEO of Pam Golding Properties, says it is hoped the opening of deeds offices is a "prelude to the real estate industry being granted permission to operate at full strength" within prescribed parameters.

He says the roughly 50,000 property professionals and associated office personnel who service them have been "unable to earn anything on sales during the lockdown as the industry is entirely commission based".

Property economist Francois Viruly, who has done research on behalf of the industry on the effect of the shutdown on the residential property market, says that based on the latest FNB residential property barometer, along with the calculation of the multiplying effect, real estate transactions could be about 45% lower in 2020.

Viruly says this would result in a decline of R4.2bn of commission with a "multiplier impact" of R8.1bn across the national economy. According to a survey undertaken by Viruly Consulting, it was implied that about 39,000 of the more than 45,000 estate agents in SA would be vulnerable "with a potential collapse of the sector".

Geoffrey Lee, managing executive of home loans at Absa, says the bank, through the Banking Association of SA, would support the co-ordinated unlocking of the residential property market sooner and subject to restrictions agreed with the government.

He says Absa, whose residential mortgage book was R237bn as at December 2019, had provided payment relief to a large number of its customers and was seeing growing interest in its programme called Help You Sell, which assists distressed homeowners wanting to sell their properties.

However, "if the customer wants to view the property directly, that is a problem under current restrictions".

Lee says the restrictions mean the properties of distressed customers could sit on the banks' books "for a lot longer" than normal and could increase non-performing loans.

Steven Barker, head of lending products at Standard Bank, says the bank has seen "home loans drying up" since the start of the lockdown at the end of March.

Barker says the bank, SA's biggest home- loan lender, is assisting clients with payment relief and through its Easysell programme, where clients who cannot afford their property can sell "under distress situations" .

Standard Bank SA's home-loan book was R357bn as at December 2019, while the total Standard Bank group home-loan book stood at R378bn.

"The opening up of real estate activities is required to ensure a reasonable market flow to allow for distressed customers to sell properties that they are no longer able to afford," Barker said.

Nedbank Home Loans says that since mid-March it has concluded more than 27,000 payment arrangements or restructures. The group's home-loan book has 297,000 accounts and is valued at R144bn.