Author: Gerhard Kotze – MD Real Estate Ageny Group
Adrian Goslett CEO of RE/MAX of Southern Africa
26 February 2021
When is the right time to start buying property?
Thanks to the Reserve Bank, interest rates are still the lowest they’ve been in 50 years, bond repayments are less than rent in many areas – but how can you be sure that homeownership is the right move for you?
Gerhard Kotzé, MD of the RealNet estate agency group, notes that the Covid-19 pandemic has also largely removed two other things that have been obstacles to early homeownership in recent years: wanderlust and the need to relocate for work.
The huge increase in corporate acceptance of remote working means that a great many young people no longer have to worry that they might need to move towns to stay employed because as long as they have a good internet connection, they can do just that from their current homes.
“On the other hand, opportunities to become a ‘digital nomad’ and travel the world with your work laptop in hand have been severely curtailed by the pandemic, and with international travel set to become much more expensive, are unlikely to be as widely attainable in the future as they have been in recent years.”
‘Surge in first-time home buying among people in their 20s’
Consequently, he says, the recent surge in first-time home buying among people in their 20s is not that surprising. “However, there is much more to it than just following a trend among your peers. As a young person, you need to think really carefully about your personal situation before making a commitment that could profoundly affect your future.”
Regional Director and CEO of RE/MAX of Southern Africa, Adrian Goslett explains that one of the most important ways for buyers to know that they are ready is to examine their financial position. “Before a first-time buyer can even begin the process, they need to find out what amount they can qualify for a home loan. Buyers can do this through bond origination companies.”
Thereafter, Goslett states that buyers will need to calculate all the ongoing costs around homeownership. There are so many expenses that are likely to be new to buyers who are moving out of home for the first time.
‘Know your financial status’
Not only will these buyers need to be able to afford the monthly bond repayments along with the corresponding rates, taxes, levies (if they stay in a complex or residential estate) and municipal bills (things like waste removal, water, and electricity), but they will also need to factor in the costs of things like the monthly grocery bill, the internet connection and/or DSTV subscription, as well as home and household contents insurance and other similar expenses – as you will now be your own ‘landlord’. Will you be able to afford all this comfortably, without feeling worried every month? There’s no fun in homeownership if it makes you stressed.
Also, will you still be able to maintain your emergency and retirement savings? It’s even more important to do this right now when the economy is shaky and the risk of sudden unemployment is higher, and when there are also increased health risks for everyone.
‘Assess the risks involved’
Kotzé says you might decide to go ahead with a purchase with only a 5% deposit in hand – or even to accept one of the 100% loans currently on offer from the banks for those with good credit records. “But before you do, you need to assess the risks involved. Property values could decline and put you in a negative equity situation if you take a bond for 100% of the current purchase price. This type of bond also tends to come at a higher interest rate, meaning that your monthly repayment will be more. And you will definitely be in a more vulnerable position financially should interest rates go up again.
“Buyers need to view real estate as a medium- to long-term investment. It is not a ‘get rich quick’ scheme. Buyers need to decide if they are ready to live in a home for at the very least five to ten years if they want to ensure a return on their investment,” says Goslett.
“It is usually better to keep your bond low and then use any spare cash you may have to pay it off as fast as possible to build up equity – even if this means buying a smaller or less expensive property as your first home. But if you have children, this might be problematic, especially if they need space for homeschooling in addition to the space you need for a home office. You might find it suits you all better, right now, to rather rent a bigger home where you can all be comfortable,” says Kotzé.
‘Don’t be driven by FOMO’
There is a lot to consider before buyers can feel ready for homeownership and, though this may cause many to put off the house-hunting process for much longer than necessary. Kotzé says young people should not be driven by FOMO (fear of missing out), because interest rates are likely to stay low for at least the next two years, while home prices continue to rise very slowly. “This is a large investment that is going to have a long-term effect on your finances, so you shouldn’t make it in a rush. Slow down to plan properly and buy when you’re ready.”
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