26 Aug 2013
Everyone is saying that market conditions are ideal for purchasing a home - the interest rate is low, banks are back in the game and buyers have more choice now than they did during the boom.
The market is ripe for the picking, however, just because the market is ready, doesn’t mean every aspiring home buyer is.
Adrian Goslett, CEO of RE/MAX of Southern Africa, says although the majority of the South African population would like to own a property, rushing into the decision and purchasing a property when you are not ready can lead to trouble. He says before potential buyers take the leap, they need to do some research and make sure that the decision is in their best interest.
Property has proven to be an asset class that continuously shows excellent returns on investment, but only providing that the correct procedures were followed, he says.
There are a number of benefits to owning a property such as having a sense of security or the freedom to make your own decisions about what happens to the property, he says. “However, along with all the benefits there are also a number of responsibilities and restrictions that homeowners need to be prepared for such as additional costs and maintenance.”
Goslett shares a few things to consider when assessing your readiness for homeownership.
This does not only refer to the monthly bond repayment, but also the monthly rates and taxes along with the maintenance costs of owning a home.
Goslett says another aspect to consider around affordability is whether the buyer’s lifestyle criteria meets his budget. In some cases, he says a potential buyer may be able to rent a three bedroom property, but will only be able to afford to buy a two bedroom property.
If he requires a three bedroom home, then he will have little choice but to continue renting until he can afford a property that meets his needs, he says.
Property is a long-term purchase
According to Goslett, there are still value-for-money properties available on the market, however, buyers will need to make sure that they can sustain the repayments and costs over the long term without putting themselves into financial distress.
He says although it is impossible to foresee unfortunate circumstances down the road, it is possible to prepare for them. He says ideally, buyers should have a contingency plan of saving money in an emergency fund to ensure that if they do hit hard times, they will be able to cover their home’s costs for around six months to give them time to sort out their financial situation.
Goslett says selling the home shortly after purchasing it could result in the homeowner losing money because in order for them to see a good investment return on their property, they should aim to stay on the property for a minimum of nine years.
Deposits and savings
A large percentage of home loan applicants will require a deposit of between 10 and 30 percent in order to get approval. This means that potential buyers need to save as much as possible for a deposit before they decide to look at buying a property.
“Traditionally South African’s have a poor saving culture, which has impacted on the number of consumers who have been able to realise their homeownership aspirations.”
According to the Savings Institute of South Africa, during the period between 1994 to Q1 2012, the household savings rate dropped from 2.7 percent to -0.2 percent. This means that South Africans were spending more than they earned in the first quarter of 2012.
Goslett notes that bucking the poor savings trend and putting money away will give the potential homeowner the best possible chances of bond approval and they will also be prepared for the other costs involved with the property sales transaction such as legal fees, transfer duties and homeowner insurance.
Speaking to a property professional or a mortgage originator will give the buyer an indication of what these costs could amount to.
Deal with debt
According to statistics from XDS credit data, last year, over nine million adults in South Africa had one or more retail apparel accounts and around 38 percent were in arrears (90 days or more) on at least one of these accounts.
Goslett says where possible, buyers should prepare for homeownership by reducing their debt. He notes that not only will a larger percentage of disposable income be viewed favourably by banks; it will also alleviate some financial pressure each month.
“Purchasing a property should be seen as a long-term commitment, and as such, the decision should be given the time and respect it deserves. Owning a property has its benefits and can be gratifying, however, buyers need to make sure they are prepared and ready for the commitment in order to reap the rewards.”
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