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Deposit demands hit small towns

24 Mar 2009
Homebuyers in many smaller towns are struggling to come up with the hefty deposits now required by banks, and this is depressing local property markets and prices.

Dewald van der Merwe, owner of the Aida franchise covering the north-eastern Free State, says the requirements are keeping prospective buyers - notably first-time buyers - out of the market in towns such as Villiers, Frankfort, Tweeling and Cornelia in the Mafube municipal district.

"Salaries in country areas are lower than in metropolitan areas and whereas prospective buyers may be quite able to keep up with monthly bond repayments, they just do not have the means to pay the required 15% to 20% deposits up front.

"The result has been a significant decline in the property markets of many small towns since about the middle of last year."

He adds that while rental demand has risen, the rents that small town tenants can afford to pay do not represent very good yields on the market value of most properties, "so investors should plan any investments in these markets very carefully".

Nevertheless, he notes that depressed prices are starting to draw bargain hunters to small towns. "Since December, there has been a sharp increase in enquiries from prospective buyers in Gauteng, for example, who are hunting for investment properties."

Gauteng buyers are also targeting farms and agricultural land. Van der Merwe says they have typically sold their city properties and are able to buy farms with a portion of the proceeds, keeping the rest as investment funds or using it as production capital.

Stock of agricultural land in the Mafube district, widely regarded as a prime area for cattle and crop production, is becoming more readily available. Van der Merwe explains that many family farms in the area have been subject to title conditions that stipulated the farms must be kept in the family for a certain period. "But the times stipulated in those conditions are starting to run out, which enables current owners to sell on the open market."

Cattle farms with established grazing are in demand and prices per hectare compare very favourably with prices for more intensive crop farms.

Van der Merwe adds that some sellers seem to be testing the market by asking far more per hectare than the market value. "We have had farms offered at R27k per hectare while a more realistic price would be in the region of R8k/ha."

For more information contact Dewald van der Merwe on 058 813 2334.

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