Ian Coffee, an admitted attorney in South Africa who has worked in various legal roles in Namibia, says the new High Court rules on the selling of primary homes in execution may create confusion.
Coffee has also been involved in legal immigration work for IBN Immigration Solutions.
He previously practised as a real estate agent and passed the Namibia Estate Agency board exam.
In an interview with Observer Money, Coffee clarified that the recent regulations could potentially complicate the process of selling primary homes during execution. “The new High Court rules on the selling of primary homes in execution may bring confusion,” he said.
Observer Money (OM): Why do you think the new High Court rules around selling primary homes in execution may have unintended consequences?
Ian Coffee (IC): To understand the problem, you have to do research on the history of the problem at hand. Primary properties, people’s homes they spent years building, being sold for absolutely ridiculously low amounts. To give an idea, if you purchased a N$2 million home in 2015 (over a 20-year period) and paid very diligently your monthly instalments of N$20 000 per month at +-10% interest, you would still owe about N$1.8 million in capital to the bank by 2025.
What happened now is, you fell on hard times, missed two to three instalments, and failed to restructure your loan. You have already paid 120% of the property value to the bank in interest; you only owe N$60 000 to N$100 000, yet at auction the property gets sold for significantly less than the value. You will now not only lose your instalments paid but also your home and still legally owe the remainder of the debt due to the property being sold for far below market value. This will most likely cause lifelong indebtedness.
The problem is not N$2 million selling for N$1.8 million or N$1.5million. The problem is N$2 million properties selling for N$200 000 to N$900 000. The exact same scenario played out in South Africa a few years ago, 2017-2018, and it had to be amended quite rapidly to avoid a bottleneck effect. The idea behind the new rules is to protect the homeowners, a very needed set of rules indeed; however, this seems to be a ‘too strict’ set of rules that will practically reduce the sheriff auctions to formalities not being attended by prospective buyers. The overcorrection of rules aimed at a problem causes a problem in a different direction.
OM: What impact will this have on the housing market?
IC: The effect might not be detrimental; however, I do think that banks will tighten the lending a slight bit, investors will flock to the private market to purchase property, and the bank’s portfolio of properties will increase. I do think that the ripple will cause a bump in property prices and make rental properties even less than what we currently have in the market.
OM: Do you think this will make houses take longer to be sold?
IC: The primary residences listed at the sheriff’s to be sold at auction will not only take longer, they might not be sold at all. Even before the implementation of these rules, some properties took months to sell. Selling distressed properties at 100% market value at an auction whilst there are uncertain amounts of municipal arrears is just not something that investors will find appealing.
OM: Do you think even those who default because of negligence or poor financial planning will take advantage of the new rules?
IC: Yes and no. Yes, there will now be an unintended benefit to the defaulters, as the property will be in limbo till finally sold. I don’t think that homeowners will default deliberately, but I do think that delaying consequences will have an adverse effect.
OM: Will the rules, in your opinion, make banks reluctant to give out home loans?
IC: The banks work with a very strict set of rules and guidelines mimicking international standards to ensure that risks are properly mitigated. However, in the event that their property portfolio increases in terms of properties remaining unsold at auctions, internal measures might be taken to enforce stricter future background checks and affordability of their potential clients. The ripple effect will result in the average Namibian having to satisfy more requirements for pre-approvals and getting loans.
Also, very important, banks might become very wary of giving out any other loans when the only security you have is a primary home.
OM: What, in your opinion, will be the right approach in dealing with this issue?
IC: My opinion is that we are on the right track to getting it right, but instead of forcing it to sell for 100% market value, reducing the percentage to 75% will have a better effect. This will allow prospective buyers at the auction to purchase a property at the auction, pay the transfer fees, bond fees and outstanding municipal arrears and renovate the property, putting the property back into the market.
Also, whilst selling the primary property should be the last resort, put a timeline on the selling of the property to ensure that if a property remains unsold for a certain amount of time, the court can apply at its discretion a reduced percentage to ensure it is sold.
OM: Do you think the government can change or amend these rules?
IC: There are multiple ways to rectify the rules imposed; this can be either through legislative powers of the government or by way of a court setting a new precedent to amend the rules.
