Is now a good time to buy a house?

With interest rates at a near 50-year low, there are many opportunities for first-time home buyers in South Africa at the moment.

According to Dr Andrew Golding, chief executive of the Pam Golding Property group, a ripple effect is currently filtering through the residential housing market, placing upward pressure on demand through the various price bands. This trend is fuelled by a low interest rate environment and a keen appetite among young and first-time buyers – which is especially evident in the lower and middle sectors of the market, coupled with generally more realistic pricing.

While it remains to be seen how the country’s economic recovery gains traction, Golding believes that solid foundations and fundamentals remain in place for ongoing investment in the residential property market. This is especially so since, in addition to the usual reasons for movement in the marketplace, the lockdown has inadvertently created the rationale for a wave of new reasons for relocation and property acquisitions, from upsizing for additional space due to work from home scenarios to lifestyle moves to more appealing destinations further afield.

CEO of RE/MAX of Southern Africa, Adrian Goslett, recently told African Reporter that at the current interest rate it is possible that the monthly repayments on a home loan will cost less than the rent on the same property. Goslett advises prospective buyers who want to stretch their budget even further to look for new developments to avoid the expense of transfer duties and related fees. An aspect to consider is that last year the threshold on transfer duty was raised to R1 million, which means that no tax is payable on the first R1 million. In the case of a property valued at less than R1 million transfer duty does not apply at all. “For those who can afford to do so, there really has never been a better time to enter the market than right now. I would just advise buyers to leave room in their budget for if and when the interest rates return to pre-lockdown levels,” Goslett says.

In a November 2020 article on Businesstech, Grant Smee, managing director for Only Realty, said that the fallout of the pandemic has forced many individuals to reassess their goals and priorities: “The pressing question right now is: ‘Should I continue renting or should I buy?’. The simple answer is to do your homework and to consider the pros and cons.” Before beginning to look around, buyers should make sure to request a free home loan prequalification. These can be easily accessed online via bond originators and gives buyers an idea of what they can afford and what their credit rating is. Smee advises that a credit rating of 600-plus is needed to be considered for a home loan.

The bond repayment is not the only consideration when calculating whether you can afford to buy a home. You also need to be able to allow for rates and taxes, water and electricity and repairs and maintenance. BetterBond explains that the general guideline set by banks is that your monthly home loan repayment should be around 30% of your gross monthly income, before tax and expenses. To this end an affordability calculator is a useful tool to determine what the monthly repayments on a loan will be, taking monthly expenses, the prevailing interest rate, and the repayment term into account.

An investment in property contributes to the diversification of an investment portfolio, while capital appreciation and income can be derived from the investment in the long term. However, buyers should keep in mind that property values and capital appreciation are determined by factors such as location and physical factors related to the property and the area. “Now, more than ever, do your calculations and make every effort to Invest in your future by becoming a homeowner rather than paying off someone else’s bond,” BetterBond concludes.

The information contained in this article is of a general nature and intended for information purposes only. It is neither to be construed as financial advice nor to be regarded as a definitive analysis of any financial, legal or other issue. Individuals must not rely on this information to make a financial or investment decision. Before making any decision, we recommend you consult your financial planner/adviser to take into account your particular investment objectives, financial situation and individual needs.