South African consumers are experiencing the financial repercussions of a slow inflation rate and weakening economy, and it is particularly evident in the property market. The average age of first-time buyers is significantly higher than it was twenty years ago. One reason is that aspirant home-buyers can’t afford a large-enough deposit or are unable to qualify for bonds, thus forcing them to remain in the rental market for longer than they planned to. Another is that buyer confidence in the property market is at an all-time low due to external economic pressures, leaving them reluctant to purchase property until positive upward change is clearly evident. These, in conjunction with high levels of debt and a tendency to settle-down later, have largely contributed to many first-time buyers taking a very conservative approach to buying.
This is not necessarily a bad thing. Buyers, whether first-time or seasoned, can avoid the implications of financial over-commitments by being financially and mentally prepared before putting pen to paper. So how does this apply to you as a buyer in today’s market?
The most important thing to consider is whether you’re in the financial position to purchase the property - not only now but should your current circumstances change in the future.
Determining your financial standing in respect to all known homeownership costs is essential to making a knowledgeable decision on a home that is both affordable and payable over a long-term loan period. In order to make an informed decision calculate your income and expenditure along with the deposit and transaction costs, preferably before your house-hunting begins. Going into your home search fully aware of the costs will give a good indication of what you can realistically and comfortably afford, and will reduce the chance of affordability-related disappointments later on.
Carefully consider all the costs
For example, the bond repayment cost, the transfer costs including transfer duty on property valued at more than R750 000, the conveyancer’s fees and rates clearance certificate fees - as well as bond registration costs. Be mindful of others such as interest rates charged by the bank, rates and tariffs, insurance, furniture removal costs, repair, general maintenance and occupational rental should occupation be taken before registration of transfer into the buyer’s name.
A reputable estate agent should provide all relevant information pertaining to the property - such as rates and taxes, levies if applicable and the average cost of water and
electricity – which is why selecting an agent that is experienced in the sale and registration process is of the utmost importance. Some agents will go so far as to provide the bond repayment cost on the full asking price of the property during the initial viewing to give potential buyers an idea of their monthly instalments. The more information you have, the better equipped you will be in making a final decision.
Preparing for the unexpected will limit possible financial strain should ill health, home repairs or sudden interest rate hikes come into play. For this reason, set aside a contingency fund, taking into account and making provision for any of the hidden costs of homeownership to avoid potentially crippling over-commitments. In short, be responsible and thorough in determining your budget.
Additionally, it’s a huge advantage to obtain a mortgage bond pre-approval from your bank prior to house-hunting. Not only will you know what you can afford and what the bank will likely grant you, but any offer made on the strength of your pre-approval will likely be more seriously considered, placing you in a better position with the seller.
Although it goes without saying, research the area you hope to buy in and surrounding amenities as this has a considerable impact on the property’s potential appreciation and resale value. Pay close attention to the property’s proximity to good schools, public transport routes, medical facilities and shopping malls as these will have a positive effect on its value, likewise note any possible drawbacks such as construction sites and power stations as these could potentially decrease its value. Keep in mind that the property should first and foremost meet your current needs rather than those of a future resale.
Whether or not you’re new to the market, being thorough in your preparation and realistic in your budget planning will significantly benefit you in the purchase and securing of your new home.