Are South Africans Planning Ahead?

Credit card and personal loan applications have decreased, but home loans are still on the rise -particularly amongst first-time buyers.

The South African Reserve Bank (SARB) recently announced that the repo rate would remain unchanged up until the last two quarters of 2021; this has positively sustained a buying surge in the residential property industry.

Grant Smee, Managing Director of Only Realty says that while the repo rate is having its desired effect, there are growing concerns around the high rates of unemployment and consumer’s affordability levels.

“Adding to this is the substantial amount of payment holidays and an associated rise in credit balances”.

Homes: From Aspirational to Accessible

“The first-time buyers’ market has boomed. Owning a home has gone from being only aspirational to being accessible. There are a few reasons for this: the low-interest rate, bank leniency in terms of lending criteria and, crucially, a significant drop in the prices of homes,” explains Smee.

Properties on the higher end of the property price spectrum have suffered the most during this period with many selling for 20 – 30% less than in recent years. “However, the R750 000 to R1.5 million price bracket range has only dropped between 5 to 10%,  largely driven by demand across the country”.

Tips to First-Time Buyers to Plan Ahead

“For those taking out home loans, it’s important to look at your affordability levels over various interest rate hike scenarios. Remember that the interest rate has to go up at some point so planning for best- and worst-case scenarios is imperative,” says Smee.

A common mistake amongst first-time buyers is buying impulsively and based on emotion. “To avoid this, view your property as an investment – be rational, do your homework and take your time in making your purchasing decision”.

Smee’s tips are as follows:

–          Shop around for the best interest rate. “Use a bond originator to save on your interest rates and monthly repayments”.

–          Consider your cost of ownership.“Understand the difference between the amount you can prequalify for and what you can actually afford. Look at the numbers, your expenses and the actual costs of owning a home each month, i.e. levies, special levies, insurance etc.”

–          Inspections are critical when purchasing a home. “Do your due diligence – get a property inspector, it helps to negotiate a cheaper deal where possible and to find leaks, electrical issues etc. before making the purchase”.

–          It’s not what you deserve, it’s what you negotiate: “In a prolonged buyer’s market, you are now in the best property market in 10 years. Take your time, negotiate, research, chat to experts and get opinions. Don’t bend under pressure”.

–          Map out your potential bond repayment over various interest rate scenarios to make sure that you can afford it regardless of what happens.

–          Use your bond (home loan) account as a savings account. “You are in effect receiving the interest rate that the bank charges you on your loan as positive interest on the money you invest”.

–          Depending on your affordability, speak to your bank to increase your home loan repayment each month. “Most people pay the minimum amount on their bond each month. Speak to your financial advisor to find out what an extra R200, R500 or R1000 can do to cut back your repayment period – the results may surprise you”.

Get the Most out of Your New Home

For those who wish to earn passive income from their new property or are looking to scale back, Smee suggests exploring the following avenues:

  • Buy to let – This is the most common route to take. “Here, buyers purchase a home with the intention of renting it out to cover the bond”.
  • Short-term letting – “Air BnB has raised a few eyebrows over the years as its unregulated and has been privy to security issues, but it is lucrative if handled correctly,” says Grant.
  • Rent to rent – “We don’t see this often, but it may pick up with many struggling to afford homes and others struggling to find tenants. Here, tenants enter into a consensual agreement with their landlord to reduce their rental by sub-letting to another tenant”.
  • Develop to rent – “This is lucrative but requires large capital investments. The developer generally develops at 70% of the sale price so there certainly is money to be made”.