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South African Property Market

How Can I Get into The Property Market

As we look at the current world economy, as well as our own here in South Africa, perhaps the question should rather be: “Should I try to get into the property market at all?” What has happened in the property market over the last few years?

Is it a matter of “from Boom to Doom?”

South Africa has gone through a period of rapid increases in property prices, the banks were granting loans of 100% plus cost, everyone was buying property. Between 2004 and 2006 prices rose at an average of 30% per year! Then the meltdown came in 2008, the world went into recession and while economists still argue about whether South Africa is in a recession or not, the property market definitely is.

High Interest Rates, Lower Interest Rates

From 2007 we have seen interest rates go up and up during the time that house prices were starting to fall, people could not repay their home loans any longer and many now owe more on the loans than what the property is worth. Then number of houses being repossessed by banks increased alarmingly at the end of 2008. Currently we are seeing about 1 200 houses per month being sold at sales in execution and insolvency sales. House prices continue to fall. At least, the experts agree that we may be near, if not at, the bottom and that prices will start recovering in the second half of 2009.

In December 2008 we saw the first interest rate cut and a number has followed since. While it may be too little too late for some it will help other homeowners to hang on to their properties. It also opens the door for new buyers to enter the market.

The National Credit Act

The introduction of the National Credit Act had an immediate impact on the property market. Banks were becoming over-cautious in their lending and the fact that one needs a deposit now when buying a home (gone are the 100% loans) has taken many people out of the market. Even the Minister of Finance, Trevor Manuel, suggested to the banks that they may be too stringent in their application of the Credit Act Rules.

It’s a buyer’s market out there!

With all the doom and gloom said and done, now is the right time to get into the property market. If you do your homework you will find bargains galore and with the continuing decrease in interest rates you may just find that you can now afford to buy property, depending on the availability of a deposit.

Buying when prices are at their lowest makes good investment sense. If you buy carefully - in the right area - you will see a good, if not great, return on your money within the next few years.

Where and what property to look for

You have a number of options to explore in your quest to find great value in property at present. Ask the banks for a list of their repossessed houses and keep your eyes open for houses going on auction. You may also look at buying a house that needs some renovation, but be careful here and get an expert to give you a good indication of what it will cost to turn a dump into your dream house.

Many developers are sitting with too much stock and they are lowering their prices to offload the properties. But don’t be blinded by low price, you still want to make sure that you are buying a good investment. Do your homework, find out what is happening in the area you want to buy, look at crime statistics as well before making a decision.

Still can’t afford to buy?

If you still do not qualify for a home loan after the interest rate cuts and the lower house prizes, don’t despair. There are different ways of getting into the property market. Remember that you do not have to buy property alone. Property can be registered in more than one name and you can have a legal contract drawn up stipulating the exact split in shares should you buy property with others.

Property can be bought in a name of a trust or a closed corporation as well, so investigate all your options and deal with people you can trust.

Fractional ownership

Have you heard of fractional ownership? According to fractionownership.co.za “fractional ownership can be defined as the collective ownership of an asset, usually one with a high monetary value. Usage of the asset is normally allocated to the shareholders (owners) by means of an ownership usage roster and running costs are divided amongst the shareholders.”

While some think it’s a great way to buy property others are more cautious. Banks are not lending on fractional ownership so you will need to pay cash for your share.

Owning one’s own home is still a dream most of us cherish and you should not give up on that dream. Work on it!

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