The South African Reserve Bank cut interest rates for the first time since March 2018 last Thursday, lowering rates by 25 basis points to 6.5%. This cut has led to banks cutting their prime lending rates from 10.25% to 10%.
While this interest rate drop will result in lower monthly home loan and vehicle repayments for South African consumers, it provides an excellent opportunity for consumers to get themselves out of debt sooner by leaving monthly repayments fixed.
Let’s use John and Shirley as an example. The couple has a home loan of R2 million to be repaid over a 20-year period. At 10.25% interest per annum, their monthly repayment was R19 632.86. With the recent rate cut, their monthly repayment reduces to R19 300.43 per month. The couple decide to leave their repayment at R19 632.86 per month, and the result is that their bond term will reduce from 20 year to 19 years. In doing this, the couple will manage to make total interest savings of R161 010 and gets themselves out of debt a year sooner.
If their interest rate was at prime plus 2%, their savings would jump to R249 461.83 (or R108 648.77 in today’s terms). If John and Shirley had 15 years left on their home loan, by keeping their repayments at the previous level they would reduce the term of their bond by six months by saving R65 098 in interest and R115 802.58 in repayments. If the couple had 10 years left on their bond, they would reduce the term by 2.5 months, saving R17 707392 in interest and R48 251. 08 in repayments.
Remember to check if your home loan has an access facility. An access facility allows any additional contributions towards your home loan to remain accessible in the account and can be used if and when the need for emergency funds arises in the future. While an access bond is one of the best places to keep your savings, it can be the trickiest to commit to. This is because when we save, we expect to see our Rand balance grow as and when we earn interest each month. However, when saving in an access facility, the growth in your money comes from the interest you are not paying on your loan account. In other words, you will be in a better financial position by not paying 10% interest on your home loan than by earning interest of approximately 7% in a savings account.
In summary, consumers are encouraged to take advantage of this rate cut by keeping their home loan and vehicle repayments unchanged. By resisting the temptation to lower your monthly repayments, you will reap the rewards of paying off your debts sooner and being able to channel the additional cashflow towards building sustainable wealth. Saving is habit-forming, and this interest rate cut provides an excellent opportunity for all consumers to establish disciplined saving habits.
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There is never a bad time to invest in property. Even when the economy is on the skids, or when you have no money.
This is according to Sylvia Koketso Milosevic, a property entrepreneur who has built a sizeable property portfolio and now runs an educational company to help first-time home buyers who want to build up a similar portfolio.
“In fact, when the economy is bad, that is the best time to invest in property,” she says. “There will be lots of bargains. But when I first started, I made lots of mistakes. My company now helps property investors to avoid the mistakes I made when I was first starting out. So even though now is a very good time to invest, there are two things you must never do: never buy property that will not pay for itself, and never try to do this on your own.”“These were exactly the mistakes I made when I first started out,” says Sylvia, “and so I created this company to provide advice, back-up and hands-on mentoring for first-time property investors.”
Sylvia was only 16 when she discovered the hard truth about the cost of living when her father was retrenched and the family lost their only income.
“It was really tough on us,” she says, “but it made me realise that a salary is not the only way to create income. That year my mother gave me a book on investing in property, and I decided that this was going to be my passion. And after I had ‘paid my school fees’ in terms of the mistakes I made, I decided that I should use my knowledge to help other people.”
Here are five tips from Sylvia’s seminars:
1. Always buy property at below market value. You will find these properties from distressed sellers, estate agents, sheriffs’ auctions, bank repossessed properties. “You can buy a property at the market value sale price,” said Sylvia, “and it will give you a return in around seven to ten years. But if you are an investor, you want a return straight away. The only way to do this is to buy below market value and then sell or rent at the market rate.”
2. Try not to use your own money or take the risk onto yourself entirely. There are a number of tactics – from getting an investment group together, to making a deal with the seller – which means that you make a return on the property without having any money of your own. “We teach people the various ways that you can buy property without having any capital of your own,” said Sylvia. “It can be done if you do it the right way, with only minimal risk to yourself. This is a huge benefit, as a lot of people simply do not have the capital to invest in property but are really desperate to get themselves out of poverty.”
3. Be careful of buy-to-rent if the market-related rental does not cover the bond and expenses. “This was the first and biggest mistake I made,” said Sylvia. “I had all these properties, but they were an expense and were draining my portfolio. I was having to pay in to make up the shortfall. I was working harder and harder in order to subsidise my investments.”
4. You have to be hungry, you have to follow the rules, and you must be persistent. “It’s vital that you keep up the momentum,” said Sylvia. “There is no point in starting and then stopping when you hit your first obstacle. It is important to understand that obstacles will happen and as long as you learn from them you are on the right path to success. You need to really want to do this. It’s for everybody, you don’t need a degree, you don’t need capital, but you do need to have one attribute: you must be a self-starter who does not give up easily.”
5. Don’t go in unprepared or uneducated. Property investment carries an element of risk, and preparation and research are vital to avoid making a costly mistake.
“You will never stop learning,” said Sylvia. “
When I first started out, I was making all these mistakes and they were costing me. My knowledge was all theoretical, from books, and I had no practical guidance. Then I saw an ad for a property seminar, and I went to it,” she continues.
“It was being hosted by a British company, and it was almost as if they were talking to me. They listed all the mistakes I had made and told me how to avoid them. That was a turning point for me. I realised that South Africa did not have this kind of network – a property investment network and mentorship programme – so I decided to start one.”
“To date, we have had over 20 000 students who went through our workshops and many lives were changed for better thanks to this program.” “We have called it Wealth Alliance because that is what it is: an alliance of people wanting to create wealth through property investment.”
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The percentage of residential properties being sold in South Africa because the owners are downscaling due to financial pressure has increased, according to the latest FNB Property Barometer.
The estimated proportion of such sales jumped from 16% in the first quarter of 2019 to 19% in the second quarter. For FNB this corresponds to its view that household finances are under pressure.
Furthermore, of those who sell due to financial pressure, 60% now rather opt to rent rather than buy a cheaper property. At the same time, this does not appear to have benefited the rental market yet, as vacancies of flats have continued to rise and rental inflation is still muted, according to the report. Overall, however, the biggest reason people are selling residential property in South Africa (23%), is still that they are downscaling due to their stage of life.
As for emigration-driven sales, these have become more prominent over the past two years, the report found. According to estate agents, these are estimated to have steadied around 13.4% of sales in the second quarter of 2019, marginally down from 14.2% in the first quarter of 2019.
Selling due to emigration appears to be more prominent in the higher end of the market, although there are indications that it has spilled over to the lowest ends of the market as well. The increase in sales in the lower and middle ends of the market could, in part, be explained by upper-income owners disposing of their investment properties, according to the report.
The FNB Market Strength Index estimates the residential property market to be moderately oversupplied, particularly in the middle to upper income areas. By property type, the index indicates that sectional title properties are over supplied, while demand and supply of freestanding properties are relatively evenly balanced.
The average time of homes on the market improved to 14 weeks and 1 day, from 15 weeks in the fourth quarter of 2018. According to the report, this could be because buyers are rushing to take advantage of bargains.
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The Rental Housing Tribunal exists to resolve disputes between landlords and tenants - and it’s free.
The Rental Housing Tribunal is a Statutory body established in terms of Section 7 of the Rental Housing Act 50 of 1999 (as amended). It is an independent body and its members are appointed by the MEC of each province, in terms of the Rental Housing Act 50/1999, to resolve disputes between landlords and tenants regarding residential properties.
An alternative to a costly court case, these tribunals have the power to summon a landlord or tenant or any other relevant party for tribunal hearing. A ruling ordering a tenant or landlord to comply with any part of the Rental Housing Act and unfair practices regulations can be issued. According to Legalwise, “if a landlord or tenant fails to comply with a ruling of the Tribunal, she/he may be convicted of an offence and sentenced to pay a fine, be imprisoned, or both. A ruling of the Tribunal is deemed to be an order of the Magistrate’s Court and may be taken on review to the High Court”.
According to the Department of Human Settlements, a Rental Housing Tribunal has the authority to deal with disputes, complaints or problems between tenants and landlords in the rental housing dwellings:
- Non-payment of rentals
- Failure to refund the deposit
- Invasion of tenant’s privacy, including family members and visitors
- Unlawful seizure of tenant’s goods
- Discrimination by landlord against prospective tenants
- The changing of locks
- Lack of maintenance and repairs
- Illegal evictions
- Illegal lockout or illegal disconnection of services
- Damage to property
- Demolition and conversion
- Forced entry
- House rules
- Issuing of receipts
- Municipal services
- Overcrowding and health matters
In terms of section 13(13) of the Rental Housing Act 50 of 1999, a ruling of the Tribunal is deemed to be an order of a Magistrate's Court in terms of the Magistrate's Court Act, 1994. The Rental Housing Tribunal is a free service - the government bears the costs because it is a statutory duty provision.
Once a complaint is lodged, any preliminary investigation necessary will be conducted to determine whether unfair practice has taken place. The complaint may take up to 21 days to register and process, after which all relevant parties will receive a letter via post with a reference number.
If the Tribunal decides that there is a relevant dispute, it may be resolved through mediation. While voluntary, this is often the best course of action. Mediation is conducted by qualified officials with many years of relevant experience, who have undergone training both internally and externally.
If the dispute cannot be resolved through mediation or there is no prospect of a successful mediation, the matter will be resolved through a formal hearing.
For purposes of the tribunal process, legal representation is not necessary, but it is permitted. A party can also be represented by any duly authorised person other than a legal practitioner. The hearings are usually attended by three to five tribunal members, the complainant or his/her representative(s) and the respondent or his/her representative(s). Either party can also ask other witnesses and experts to attend.
Once the oath has been administered, the parties will be given an opportunity to present their cases and provide their evidence. The tribunal members will consider everything and issue a ruling.
If you do not agree with the findings of the tribunal you can ask for a review before the High Court.
It must be noted that the tribunals cannot order the eviction of a tenant. In such cases, the landlord will have to go to court. If the court finds unfair practices have occurred, it might refer the case back to the relevant tribunal.
For more information regarding your rights as a landlord or a tenant, and contact details for Rental Housing Tribunals in your province, visit the website of the Department of Human Settlements.
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