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BMW Beats the Banks

Whilst the European crisis and it’s ripples to South Africa have got grey suited local bankers all in a Windsor knot, one motor finance company is putting its hand up making itself available for, what is believed in some circles, to be signs of better times ahead for residential property.

In a move that in itself may boost the whole house marketing sector, luxury car manufacturer, BMW, has made public its plan to move into the home finance sector. Actually BMW have been easing its way into this world for some time.  But now there is a drive to acquire a greater number of applications.

In pursuit of motive for the movement into the housing market BMW’s response has been a bold one.  BMW intends to counter what it considers to be extremely poor service by banks. It seems that banks are quivering in the face of implementing Basel III.

Basel III is the third of the Basel Accords. It was developed in response to the deficiencies in financial regulation revealed by the late-2000s financial crisis.

With the onerous requirements of Basel III on banks, one ought not to be surprised to see that non-bank players are becoming more prominent in the SA home loan market. We should expect this to continue. Expect that the standard home loan interest rate will have to be set one or possibly even two percentage points above prime, because the cost to the banks of funding these loans will rise that much.

Back to BMW, an investigation by Finweek found that: BMW Finance provided “better service, a more competitive interest rate & lower administrative costs than any of SA’s big 4 banks.” “FNB was the only bank that came close to providing a deal that competed with that of BMW Finance. However, the bank’s initiation fees were higher & you are required to open a primary bank account with it.”

Bill Rawson of Rawson Properties said in a press release that the move by BMW Finance, in his view, makes complete sense because the existing BMW clientele base is almost certain to be an excellent initial target market.  The link-up between motor cars and homes also increases the security of the loans because homes are a more reliable asset than vehicles.

Watch this space for other motor finance houses following suit.

More up-beat than the effects of Basel III is the belief in a slow but steady upturn and recovery in the property sector. BMW’s lead with a plunge into the market is not all that has estate agents aflutter.

–          the average House Price Index is now at a two year high and rising at 8,6% per annum.

–          a 12% plus decrease in civil summons in the first quarter of this year.

–          a 42,4% decrease in liquidations

–          the number of 100% bonds issued has risen by over 35%.

(According to the FNB Property Barometer.)

Many analysts seem convinced that South Africa can ride out the effects of the European Financial Crisis. Although difficult times may be ahead they are unlikely to differ from the difficult times currently experienced.  The impression one gets is that though ill the market is not terminal and will continue to survive as a provider of necessary products for which there continues to be a market.