Only one in every two buyers in South Africa is likely to realise their dream of home ownership in 2013.
“Banks have tightened up their lending criteria again so finance is likely to remain a major issue going forward. To get around this, make sure you have a deposit of at least 10 percent of the purchase price and that your credit record is clean. Use a mortgage originator like ooba, who give you options and expertise. Then you’ll have a reasonable chance of securing finance, and at a good rate.”
That’s the prognosis of Richard Gray, CEO of Harcourts Real Estate, on the back of tightening lending criteria, stock shortages in certain areas and growing competition among buyers.
While expecting the market to be more vibrant this year than it was in 2012 as a result of the stable, record low interest rate and a tradition of home ownership that has unfailingly trumped every economic downturn, Gray says it still presents major challenges to buyers.
Among the toughest of these is obtaining bond finance. “While mortgage originator ooba reports securing seven out of 10 loans for its applicants during the first three quarters of 2012, the national decline ratio came in at 48.8 percent, according to ooba’s November 2012 statistics. In essence, this translates to one in two applications being turned down by the banks,” says Gray, who believes bank aversion to risk is going to increase this year. “Banks have tightened up their lending criteria again so finance is likely to remain a major issue going forward. To get around this, make sure you have a deposit of at least 10 percent of the purchase price and that your credit record is clean. Use a mortgage originator like ooba, who give you options and expertise. Then you’ll have a reasonable chance of securing finance, and at a good rate.”
Another challenge for buyers in 2013 is likely to be a shortage of stock in some areas, particularly in the lower to middle price range, which Gray puts at between R550 000 and R800 000. This is the sector of the market most favoured by first-time buyers, who accounted for a record 52 percent of ooba’s home purchasers in September 2012 and whom Gray believes will continue to drive demand this year.
Third on his list is unqualified house hunting. “Thousands of prospective buyers were bitterly disappointed last year when, having failed to get themselves prequalified by their bank or mortgage originator before starting their search for a home, they ended up choosing a property that ultimately proved to be out of their price bracket.”
To avoid this, Gray urges house hunters to get themselves prequalified for a bond so that they know exactly what they can afford upfront. “This is a free service offered by all the lenders that will not only establish the size of the bond you qualify for but also the costs involved in the transaction. Being pre-qualified also identifies you as a serious and able buyer, which could stand you in good stead during negotiations,” he says.
Gray also cautions against tardy decision making, saying that competition is growing among buyers. “Don’t hum and ha too long if you’ve found the right place because another buyer will likely come along and sweep it out from under you. Correctly priced properties sold well last year and everything points toward this trend gaining momentum in 2013.”
Something else for buyers to consider this year is the danger of making “low ball” offers. These, explains Gray, are offers that are significantly lower than the market value of the property. “A low ball offer in most sellers’ minds translates to the buyer trying to steal their property from them. It’s no secret that buyers want a bargain but an unreasonable offer, which I’d pin at anything less than 80 percent of the market value of the property (as opposed to the asking price) will antagonise the seller, who will invariably then put the brakes on any further negotiations with that particular buyer,” he warns.