“Of course, no-deposit or 100% home loans do make it easier for young buyers and first-timers to get a quick start in the property market, and over the past 10 years they have once again become more readily available, especially to buyers in the affordable home sector.
“However, it is important to understand that 100% loans come at a high long-term cost, and that with home price increases currently running behind the rate of inflation, there is less pressure to get into the market quickly and all the more reason to save and put down a deposit of 10% or even 20% of the purchase price.”
In the first place, he says, this will make it easier to qualify for a home loan. “If you were buying a R1m property and could put down a 10% deposit (R100 000), for example, the gross household income required to qualify for a bond at the current prime rate of 10% could drop from around R32 000 a month to around R29 000, depending on your other monthly expenses.
“In addition, the minimum monthly bond repayment will fall from R9650 to R8685, which will immediately make your home more affordable on a month to month basis, and reduce your household expenditure by almost R12 000 a year.” (See table below.)
In fact, says Botha, it would probably save you much more than that, because 100% loans are usually only granted at interest rates well above prime. Putting down a substantial deposit will not only increase your chances of loan approval but also put you in a strong position to secure a much lower interest rate, because it makes you a lower-risk borrower for the banks.
“So if you are approved for a R1m home loan with no deposit, the interest rate might be 12%, for example, while paying a R100 000 deposit might enable you to secure a R900 000 home loan at an interest rate of 11% or even less, depending on your personal financial profile. And the difference that could make to your current and future finances is really significant.
“Taking that example, the table below shows how the smaller home loan (after payment of a 10% deposit) plus a 1 percentage point difference in the interest rate charged could translate into annual savings of more than R20 000 on your home loan repayments, plus a saving of more than R300 000 on the total interest payable over the lifetime of your bond. That would be a worthwhile return on the R100 000 initially invested in your home as a deposit.”
And finally, he says, saving a deposit puts home buyers in a better position to weather any future financial difficulties. “If someone with a new 100% home loan were suddenly to lose their job, for example, and had to sell their home in a hurry, there would be selling costs and agent’s commission to pay as well as the 100% loan to repay, so they could quite easily end up owing more than the sale price of their property.
“The buyer who had paid a 10% or 20% deposit would obviously be able to cope much better in this situation – and it is worth noting that they would also be in a better position to cope with any future rate increases, or to start paying their home off more quickly if interest rates should fall.”
While Cape Town's property prices, bolstered by better governance, a safer environment and a better quality of life, continue to outstrip other cities, experts are now reporting a slow down in semigration figures to the city and its immediate surrounds. Has affordability finally tipped the scales out of the Cape's favour, or are there other factors at play?
Previously, semigration was largely driven by the governance in a region. People just wanted to live in a province where they got what they paid for in terms of municipal service delivery. Cape Town was always the poster child for this, relatively speaking, but recent times have somewhat changed this sentiment.
Increases in crime, traffic and water issues, combined with the collapse of local agriculture and tourism, have had a notable impact on the perceived efficacy of Cape Town’s local government. This, together with major property price growth and rental escalations, has made the relative value of living in the Mother City less obvious to upcountry buyers.
Retirees opting for Garden Route
We’re seeing notable trends in population groups like retirees choosing to settle along the Garden Route instead of in the greater Cape Town region. This is partly because of the quieter, safer environment and more predictable service delivery on offer, and partly because you can get a lot more for your money outside of the city and its immediate surrounds. This is particularly important for those on a fixed income, like retirees, but also influences younger buyers with families to raise.
Lifestyle also plays an important role in semigrants opting out of the Mother City.
The area along the East Coast, between Cape Town and Port Elizabeth, is without a doubt one of the most beautiful parts of our country. Many of the towns along the Garden Route are also the safest places in which to bring up a family and offer an incredible lifestyle with an emphasis on family, work-life balance and outdoor activities.
KZN North Coast attracting entrepreneurs
The KZN North Coast is equally desirable from this perspective, boasting close proximity to two of the busiest ports in Africa as well as easy access to King Shaka International Airport. This has attracted a multitude of entrepreneurs to the area, who are making the most of the excellent value for money and quality of life on offer, paired with abundant business opportunities.
We’ve also seen a rise in the ‘super commuter’ – professionals who live in small country or coastal towns and commute to major business hubs during the work week. This, together with increasing remote work opportunities, has made it possible for professionals to look for property further afield than the major cities and could well be contributing to the slow decline of semigration to Cape Town.
While semigration figures to the Cape have certainly been dropping the Mother City remains a popular destination for South Africa’s semigrants. However sellers in the region must guard against overambitious pricing if they want to continue to capitalise on this trend.
Properties that remain on the market for long periods of time are doing so because they’ve been overvalued and aren’t competitive enough for today’s buyers. The world is getting smaller and Cape Town’s competition is growing. If sellers are going to continue to attract buyers from upcountry, they’re going to have to hone their competitive edge.
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The real estate industry has benefited greatly from technological advances on the one side, but on the other side it has also made it easier for scammers to prey on unsuspecting buyers, sellers, landlords, tenants and agents.
Here are some precautions with regards to sales and rentals to minimise the risks of falling victim to real estate fraud in either category.
The below red lights should not be ignored when it comes to rentals:
People who know that they will be seeking rental accommodation should start looking for rentals timeously as to avoid becoming desperate.
Outlined below are some pointers that should raise red flags when considering a sale:
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