Archive | May 2013

Car-share the ‘green’ way to go for gated communities

If you live in any kind of communal housing scheme such as a sectional title block of flats or a security estate, it is likely that you are already doing quite a lot to save resources and cut energy consumption – like sharing the garden, access roads, security lighting,  electric fencing, and maybe a pool or a fitness centre with your neighbours.


However, if you really want your scheme to be “green”, why not join a major trend that is now catching on in the US and Europe and organise a partnership with a car-sharing* service?

Car-sharing schemes were originally devised by the Swiss after World War II when most people could not afford a private vehicle, and still offer money-saving benefits today in that it spreads the costs of owning a vehicle – the monthly repayments, fuel, servicing and tyre changes, parking and insurance – among several people.

Car sharing can also allow people who live close to work or school and usually walk or take public transport access to a car when they really need one for a longer trip, and can also provide versatility, in that members who usually only need a small run-around can book a truck for moving day – or perhaps a sports car for a special day out.

But the real value of the idea in the more environmentally-conscious current age is that it has been shown to take cars “off the road”. A recent study done by the University of California at Berkley, for example, found that almost half of the households participating in car share programmes gave up their cars, and Zipcar, the leading US car-share company, estimates that each of its cars removes about 15 personally-owned cars from the road.

This means less traffic congestion, less wear-and-tear on roads and, of course, less air pollution and fuel consumption and as the idea gains currency, the hope is that it will also mean less need for parking infrastructure and new road development, so that more resources can be directed to the development of other facilities such as schools, hospitals, parks and even social housing.

And seeing this, many apartment and townhouse complexes in the US and Europe are now partnering with services like Zipcar – and being supported in their efforts by local authorities. The city of San Francisco, for example, is now allowing residential developers to add more parking spots to apartment projects, provided that a certain number of bays are reserved for car-sharing programs.

*For more information about how car-sharing works, and how it differs from ordinary rental car facilities, see here.


More bonds granted, but banks still strict

The average home price showed a year-on-year gain of 9% in April to R893 000, according to the latest statistics from BetterBond, South Africa’s leading mortgage originator.

“This reflects the continued upward trend of prices over the past year, despite monthly fluctuations,” says BetterBond CEO Rudi Botha, who notes that this growth has largely been driven by an increase in demand, as evidenced by the steady climb in the number of home loan applications being submitted each month. This number is now 9,6% higher, on average, than it was 12 months ago.

“In addition, the monthly home loan approval rate now stands at 69% of those applications, compared with 61% 12 months ago, and what this means, given the higher number of applications, is that the banks are approving more bonds than they were at this time last year,” he says.

“Indeed, this tallies with the latest available Reserve Bank statistics, which show a 1,6% year-on-year growth in mortgage advances in February, mostly as a result of higher demand in the residential property sector.”

However, the BetterBond statistics, which represent 25% of all residential mortgage bonds being registered in the Deeds Office and include applications to, and bond grants from, all the major lending banks in SA, also show that the pattern of lending has remained much the same since August last year, with 30% to 35% of loans granted each month being for the full home purchase price (100% loans) and the remainder being spread fairly consistently over the other loan-to-value categories. (See Graph 1).


“This indicates,” says Botha, “that while banks are now slowly expanding their home loan ‘books’ again, there has been no significant change in their lending criteria since the last interest rate drop in July 2012. The great majority of homebuyers are required to pay a deposit in order to secure a home loan, with the average deposit being 17% of purchase price – the same as it was 12 months ago.”

The statistics also show a consistent pattern of higher percentage deposits being required for higher priced homes. For example, the average deposit required for homes costing between R500 000 and R1m, which is where the bulk of purchasing activity (42%) is taking place, has remained within a narrow range of 12% to14,5% of purchase price for the past 12 months.

By contrast, buyers in the R250 000 to R500 000 price category are usually only required to pay a deposit of around 7,5%, while those purchasing for more than R2,5m generally need to find around 35% of the price in cash. (See Graph 2).


Botha also says that no major changes to this scenario are expected at least until the end of this year, barring any sudden change in interest rates. “Despite the current low rates, the increase in demand for property – and in home loan lending – is likely to remain muted in the coming months as consumers struggle to cope with significant cost-of-living increases and the banks worry about very high household debt levels that limit the ability of borrowers to make bond repayments.”

Do you really need the whole home loan?

One of the great things about buying property is that it is relatively easy to gear the purchase – or use the bank’s money to finance most of the purchase price – and then keep the profit made on the entire asset when you decide to sell.

And the higher the gearing ratio – that is, the smaller the deposit and the bigger the loan – the greater the opportunity for gain.

balance house and money

However, higher gearing does also mean higher risk. Property prices fluctuate, in the short term, although historically the trend has always been upwards. If you buy a property with a deposit of only 5% and prices then fall 5%, you will lose your whole “investment” unless you can wait for prices to rise again before you sell.

Borrowers also need to consider that a lower gearing ratio – a bigger deposit – will generally mean a better chance of being granted a home loan at the most favourable interest rate, and of paying the loan off faster, so that the property owner will show a bigger “profit” when the time comes to sell.

Banks will determine how much you may borrow, based on your credit record and current income, and it is a good idea to be pre-qualified for a home loan, so you know what your limit is before you go househunting.

But as a prospective buyer, you also need to determine what size loan you would feel comfortable about repaying. Just because a bank is prepared to grant you a bigger-than-expected loan does not mean that you should immediately opt for a more expensive property or a higher gearing ratio.

Determining what size loan is right for you remains a personal decision and should take into account your overall investment strategy, as well as the property in question.

The buyer of a newly-built property for example, may need less cash to cover transfer costs or improvements and be able to put down a bigger deposit, while the buyer of an older home may decide to take a bigger loan and keep some cash in hand to cover the costs of repairs and renovation.

In general, it is good advice to put down the biggest deposit possible and keep the amount borrowed to the lowest level, but before you decide, you really should consult a mortgage originator such as BetterBond, so that a professional loan consultant can identify and present you with all your loan options.

Ten tips for buying a bank-repossessed property

This week’s article was contributed by John L. Bradfield, and originally appeared on his blog “This ‘n That”. John is a Real Estate professional with 20 years’ experience in this industry. He is based in Hermanus, the whale-watching capital of the world.

ForeclosureOne of the advantages for buyers of property in the current economic climate in South Africa is the increased availability of bank-repossessed homes on the market.

When borrowers default on the payment terms of the mortgage loan, eventually this will lead to legal action by attorneys instructed by the mortgage holder. A judgement is obtained in the High Court, and the property is then attached and sold by the Sheriff of the High Court at a sale in execution. If the auction fails to achieve the bank’s reserve price, then the property will be bought by the bank and placed on the market again. This is called a Property in Possession (PIP).

Another source of PIPs comes from home owners that are declared insolvent. Here a trustee will be appointed, who in turn will appoint estate agents to market the property. If it does not sell, a public auction will be arranged through a qualified auctioneer. Once again, if the property does not fetch a suitable price, the bank may buy it in and the property will be placed on the market by the bank.

On average, bank-repossessed properties sell at a huge discount, and since banks are keen to find buyers, they are often ready to relax their lending criteria, making home loans in these cases a little more accessible. This may include reduced, or even no home loan registration costs.

Another advantage is that the transfer process is often much quicker, leaving more time to do any renovations before actually moving in. Also, property rates and taxes (including arrear amounts) will be paid by the seller (the bank) up until date of registration.

Here are the top 10 tips for buying a bank-repossessed property:

1. Make sure you have a plan
What will you do with your property? Will it be a buy-to-rent purchase, will it be a holiday home, or will you live in it?

2. Get pre-approval if you intend to buy with a mortgage bond
Chances are, if you like the property, so will many other potential purchasers. You do not want to lose out to another buyer while you are waiting for your home loan approval. Have your pre-approval in hand when you make that offer to the bank. It will speed up the process, and increase your chances of having your offer accepted.

3. Compare the price of similar sold homes to the price of the bank repo you intend to buy
You need to compare “apples to apples” to make sure that your intended purchase is good value. An experienced agent can help you with this by preparing a Comparative Market Analysis (CMA). By accessing Deeds Office records for the selling prices of properties recently sold, it’s possible to get an accurate assessment of what your target property’s selling price should be.

4. Know the hidden costs of the property
Bank-repossessed properties are sold voetstoots (as is), and the bank will not undertake any repairs. Often the property has been stripped of fixtures and fittings. Typically the property has been through an extended period of neglect and essential repairs and maintenance have not been taken care of by the previous owners.

Electrical, plumbing and gas installation compliance certificates must be obtained by the purchaser as part of the transfer process. If the property is in a mess, the costs of bringing these areas up to scratch could be significant.

5. Get a home inspection
A thorough inspection for defects carried out by professionals can go a long way to identify all defects and potential defects in the property. Consider investing in a professional home inspection before you make a buying decision.

6. Investigate if the property is occupied
It can happen that there are occupants living on the property at the time of sale. This could be the previous owners that have not yet moved, tenants that are still there, or it may be an illegal occupation. Whatever the case, this automatically becomes the buyer’s problem at the time of sale, and the costs of an eviction and relocation may become the purchaser’s liability.

7. Investigate restrictions on the title deed
Any restriction or servitude on the title deed may or may not be mentioned in the information provided, and it is therefore advisable to look at the title deed before making a decision. If the property is owned by the bank, they will be in possession of the title deed.

8. Consider the location of the property
This may seem obvious, but most people in financial trouble will first have tried to sell the property themselves before the bank foreclosed on them. If the home is badly situated, this could be the reason the property did not sell in time to save the situation.

9. Make a good offer
Once you have decided that the property you are considering is a good buy, know that other people will also come to the same conclusion. There is no point in making a low offer. Ideally you should make an offer that is within 90 – 95% of the bank’s asking price. You will just lose out if you keep making offers that are too low.

10. What to do if your offer is turned down
You could up your offer. However, you might consider it worthwhile to wait 30 days and re-submit your offer. Properties in possession are expensive to maintain. There may be security guards on the premises, and the garden must be maintained, for example. The bank could become more negotiable as time passes.

Visit the BetterBond website for more information about pre-approval and other real estate matters.

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