SA’s current affordable housing backlog, estimated at 2.3m is attracting new innovations by big lenders, ensuring sustainable market share in the future. One such innovation is Absa’s establishment in 2007 of an investment fund and 100% subsidiaries, Diluculo Property Trading, and Diluculo Properties, collectively called ‘Diluculo’, to invest in SA’s affordable housing market. Diluculo currently focuses on acquisition of rental units, a unique investment model, as most other major banks in SA choose to lend to developers, rather than owning properties. Absa’s investments in Diluculo, in the form of equity and shareholder loans and secured interest-bearing loans, have not only earned Absa Financial Sector Charter points, but increased the local affordable housing pool. Luthando Vutula, Managing Executive for Absa Home Loans says Diluculo Properties will acquire affordable rental units aimed at listing a residential rental portfolio within five years on the JSE. While the residential property market is in a downward cycle it allows Diluculo to acquire rental property at a discount while obtaining higher rentals, with benefits to be gained from property value appreciation when the market swings upward. With growing interest in the affordable housing market, Absa Home Loans believes that this sector of the market is an incubator for the traditional normal home loan business, and focus on the affordable housing segment is very necessary for the sustainability of the home loan business in the future. To facilitate in the process of offering credit to the so called GAP market - catering for home loan applicants earning monthly incomes of between R3 500 to R15 000, Absa offers the ‘My Home’ product, catering for up to 110% loan to value on the back of a CRIS guarantee, which customers can use in support of home loan applications. Absa Home Loans also launched HomeBuy and Absa One Call solutions to assist their customers. Another recent development at Absa, in the prevention of defaulting on home loans, is its partnering with the French Government to offer guarantees to affordable housing customers. This bridges the security risk gap between the outstanding balance and forced sale value should the loan be called up, while protecting both the customer and the lending institution. Absa’s fortunate position during the economic crisis of being a subsidiary of Barclays Bank provided the bank access to global best practices and learning. Vutula says Barclays Bank was the only UK-based bank not to make use of a government ‘bail out’, and is highly regarded for its prudent lending approach, high focus on governance, compliance and the ability to manage risk well. He says these strengths, combined with Absa’s regional dominance in the retail market and high level of experienced leadership, have ensured that the Home Loan business has been well positioned through the tough economic environment. Vutula says: “Absa Home Loans has managed to increase its ability to grant and extend credit by 26% year on year, whilst focusing on a customer-centric, yet prudent lending approach. This was done with the intent to protect the home owner from once again being over indebted, and therefore more likely to be in a position to manage through further tough economic cycles should they occur in the future.” He says that with interest rates at a 30-year low of 9.5%, having moved significantly from 10.5% in 2005 to peaking at 15.5% in 2008, it has a significant impact on customer’s affordability. Absa experienced significant growth in 2005 due to low interest rates and the demand for properties dropped in 2008 due to higher interest rates. As a responsible lender, Absa is committed to assisting its customers through financial hardships. The Debt Solutions Helpline implemented in 2009 and operated by Debt Solution Specialists takes a holistic view of a customer’s financial circumstances and indebtedness across multiple products. Absa will only take the route of legal foreclosure on assets as a last resort. On average, legal foreclose is less than 0.01% of total delinquent/arrear portfolio. Absa says it wants to keep customers in their houses and encourage them to pay a little more as their financial situation improves. For Absa Home Loans, some of the lessons learnt during the recent tough economic period include the ability to manage risk a lot tighter, while practising heightened awareness of fraud management. Absa Home Loans also placed a strong focus on managing profitability due to the increased cost of capital. Clear differentiation was made in the assessment of new or existing customers, with special attention paid to flexibility required in dealing with distressed customers. The management of non-performing assets was attended to, as well as the understanding of market share versus quality of portfolio. Vutula says Absa fully supports the National Credit Act in prudently protecting consumers, and observes that legislation will always undergo revision as the market and industry change and adapt. “Old legislation is often replaced by more relevant and updated policy thinking.” Article courtesy of 
, and is taken from the November / December 2010 issue.
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