Loan to Value Ratios
SOUND FINANCIAL PLANNING WITH REGARD TO DEPOSITS ON NON-PRIMARY RESIDENCES AND THE INHIBITING EFFECT THEREOF ON THE RESIDENTIAL PROPERTY MARKET
1. Words and expressions defined in the Regulations Relating to Restrictions on Loan-to-Value Ratios (the “Regulations”), shall unless otherwise defined, have the same meaning in this article. The purpose of this article is to clarify the applicability or inapplicability of the Regulations relating to Loan-to-Value Ratios: Banking Institutions Act, 1998 (Act No 2 of 1998) when applying to commercial banks for financing.
2. The question is, when is a juristic entity required to furnish a deposit on the purchase of any non-primary residential property in relation to the interpretation and/or application of the Regulations, which have become effective and enforceable in the Namibian banking sector as from mid-March 2017?
3.At the outset it is important to note the following legal conclusions, namely:
3.1 the Regulations only apply to mortgage loans extended to ‘customers’ in relation to the first ‘non-primary residence’ , hence the Regulations are not applicable to any commercial properties which can still be financed as usual without any loan-to-value restrictions whatsoever;
3.2 a ‘customer’ is defined in the Regulations as only relating to natural persons (people in their personal capacities)
3.3 the Regulations only apply to natural persons intending to purchase a first and subsequent non-primary residence, with one exception due to Regulation 2 (4), being a property-owning Close Corporation in which a natural person, who already owns a primary residence, owns more than 50 % of the member’s interest;
3.4 any Close Corporation in which no one particular natural person has more than 50 % member’s interest, any Trust or Company (Private or Public) which seeks to acquire financing for the acquisition of residential property is excluded for purposes of the Regulations which are inapplicable to the aforementioned entities, which can be financed as usual without any loan-to-value restrictions whatsoever.
4. It can therefore be stated that the Regulations only apply where a mortgage loan is sought for the purchase of a non-primary residential property by a natural person either in their personal capacity or through the means of a Close Corporation in which such natural person has more than 50 percent of the member’s interest.
5. It therefore follows that in the following cases the Regulations will not be applicable:
5.1 Where commercial property is purchased irrespective of the nature of the purchaser;
5.2 Where the prospective purchaser is a private company, irrespective of the shareholders;
5.3 Where a primary residence is purchased, irrespective of whether the purchaser is a natural person or a holder of one hundred percent of the members interest in a Close Corporation which is to become the registered owner of the primary residence;
5.4 In any instance where residential property is purchased through a Close Corporation and no single natural person owns more than fifty percent of the members interest in the aforementioned Close Corporation (It would be possible for spouses married out of community of property to found numerous Close Corporations in which either spouse holds only fifty percent members interest and to apply for numerous mortgage loans for residential property irrespective of such being a primary or non-primary residence without any applicable loan-to-value restrictions as Regulation 2(4) is inapplicable to such Close Corporations).
6. It should therefore be noted that the Regulations do not apply to any company whether private or public; as such, companies are separate juristic entities and are not specially included or addressed, as is the case with certain Close Corporations as limited to the cases falling under in Regulation 2(4).
Dr Weder, Kauta & Hoveka