6 Reasons Why You Should Buy Property In Uncertain Times

Property Sales

As a result of COVID-19, many South Africans were faced with retrenchments or salary cuts, and the complete lockdown had a noticeable impact on the residential property market in the country. However, despite all the bleak expectations for the future of this market due to COVID-19, current conditions are proving to be an excellent time for residential property buyers, especially for first-time home buyers.


Once the Level 3 lockdown was declared and the property industry returned to work, it was expected that the banks would tighten up on their approval of home loans due to the increased risk posed to repayments under the current economic conditions. However, it became clear that a lot of the ominous warnings were proving to be groundless and that, somewhat surprisingly, favourable conditions were being created for first-time buyers wanting to obtain home loans.


Compared with the previous financial year, the bank approval rate for bond applications dropped 70% in April. Still, it was only 30% lower in May, which signalled a possible recovery for home loans in the residential property sector. Despite the effects of COVID-19, South Africans continued to be interested in purchasing residential properties.


Any prospective buyer who has conducted an affordability study and who is in good standing financially, should not experience resistance from banks when applying for a home loan. This is an attractive option for buyers, mainly due to the following current conditions:


It Is A Buyer’s Market

Significant drops in house prices and a more-than sufficient supply of homes under the impact of COVID-19 have been attributed to more people being unable to afford their home loans due to job losses and salary cuts. On the other end of the scale, this creates favourable economic conditions for buyers, especially first-time buyers who otherwise find the cost of residential properties in urban areas prohibitively expensive. The current economic conditions now mean that they can overcome some of the affordability challenges.


A Favourable Prime Lending Rate

The prime lending rate is the interest rate that commercial banks charge their clients to lend money. When borrowing money from a bank for a home loan, the bank will charge the prime lending rate, plus or minus interest.


In January 2020, the Prime Interest Rate was at 10%. This year so far has seen four interest rate cuts which have brought down the prime lending rate to 7.25%, the lowest it has ever been in over 50 years. This low-interest rate means that the income criteria a bank looks at  becomes a lot simpler and the significant decrease makes a substantial impact in terms of how much a person can borrow – which therefore makes the time right for purchasing a home.


However, it needs to be noted that if the interest rate starts to increase again, it may make the home loan unaffordable. Therefore, and to avoid this, a fixed interest rate, which is usually around 1 – 3% higher than the prime lending rate, should be considered.


Start Creating A Set Of Assets

Homeownership is considered a form of saving and provides a certain level of financial security as the home loan is paid off and the asset increases in value over time, thereby building up equity. Another additional benefit is that a good credit record can be established by consistently paying off the home loan. As an attractive prospect for a bank, this means that borrowing capital in the future for additional assets or investments become much easier.


Why Pay Rent?

Taking into consideration that an average monthly residential rental is around R7,800 and the average monthly bond repayments for properties purchased between R875,00 and R1 million is between R6,900 and R7,900 – this is a no-brainer, if the purchase of a residential property proves to be financially possible for the buyer.


No More Landlords

Sometimes a landlord can hold back their tenant’s lifestyle if ownership of pets is being considered or renovations are required, due to a change of life’s circumstances. Homeownership means that landlords do not need to be approached for permission to make changes and improvements that could most certainly increase the value of the asset.


Save On Transfer Duties

Besides obtaining a loan to purchase a home, transfer duties also need to be paid. This is a tax which the buyer must pay, based on the property value. Earlier this year, the tax threshold for transfer duties was raised to R1 million, which means that buyers are not liable to pay tax on any property purchased for under R1 million. It also means that, in the cases of properties purchased for more than R1 million, the first R1 million is not subject to transfer duty. This is a bonus for home buyers.


Figures for June 2020 indicated an increasing trend in the number of home loan applications which surpassed the pre-COVID targets. This could point to a considerable recovery in the property market, and possibly sooner than expected. However, whether this is due to an accumulative demand during lockdown, or the low lending rates combined with a welcoming reduction in transfer duties, remains to be seen.


Banks are also approving an increasing number of home loans for first-time buyers, more in fact, than in the last three years, which seems to indicate that banks are feeling more positive about the repayment of these loans and that first-time buyers have a considerable grasp of the current property market. This is undoubtedly the best prospect first-time buyers have had in over 50 years.


If you are looking at purchasing your first home, or even a new one, Karis Properties advises that your home loan repayment, before taxes and other expenses, be around 30% of your gross monthly income. Once the viability of buying a property has been determined, it is wise to put down as much of a deposit as possible.


There has never been a better time to purchase your own property. Together with Karis Properties, they will help you to create your financial security by taking the next step towards becoming a homeowner instead of a tenant.