Archive | October 2013

Here’s what high-end homebuyers want most

The home feature that high net worth individuals (HNWIs) currently value most is an open-plan layout, according to a new survey by Coldwell Banker Previews International and the Luxury Institute.

Open plan

In addition, the survey found online customer reviews had a much greater influence on HNWIs when it came to choosing an agent than any social medium.

While full automation in “smart” homes ranked as the most sought-after feature now among almost one third (32%) of the survey respondents, 39% said an open floor plan was more important to them now than it was three years ago.

The next most wanted luxury features were swimming pools (28%), outdoor kitchens (23%), home gyms (20%), home theatres (19%), and “green” certification (18%).

However, features such as staff quarters, tennis and other sports courts, safe rooms, and multiple garages, were all ranked by the HNWIs surveys as less important now than they were three years ago.

And these results reflect the fact that the luxury real estate market is currently being driven by younger buyers, the report says.

Quoted on, Coldwell Banker Previews International NRT Betty Graham said the audience for luxury property was growing younger, and that wealthy young people were often willing to pay more than buyers aged 55 or older.

“Our survey showed that 43% of younger HNWIs were considering purchasing residential property in the next 12 months, compared to 21% of those aged 55 and older. In addition, we found that the younger buyers spent an average of US$2,1 million on their most recent purchase of residential property – or about twice as much as their older counterparts.

“And this trend toward younger luxury buyers is the main reason for the change in desired home amenities. Whether these younger buyers have young families or are single without children, they are looking for homes that fit their modern, active lifestyles.”

Other findings from the report included the fact that 38% of the HNWIs already owned two or more properties and (surprise, surprise) that a whopping 70% of respondents still rank location over any other consideration when buying a new property.


Home loan approval rate rises

According to the latest statistics from BetterBond Home Loans, which is SA’s biggest mortgage origination group, its home loan approval rate has topped 80% in the past month – the highest level reached since 2009.

The September figures also show a 30% year-on-year increase in the value of home loan approvals achieved by BetterBond, to R1,7 billion a month, says CEO Shaun Rademeyer.

“This is partly a function of the increase in the average home price, which our figures show has risen 9,8% in the year to end-September, but also an indication of the effectiveness of mortgage originators, who not only provide potential borrowers with a comparison of the various borrowing options on offer at any particular time, but will also motivate their applications individually and submit them to several different banks if necessary.

“It is worth noting that although the initial decline rate appears to be dropping at the moment, more than half of the home loan approvals that we have achieved over the past year have only been achieved on submission of the application to a second or even third lender.

“Also, the percentage of applications turned down by our client’s own banks and then approved by a different bank has risen from 13% to 15% in the past 12 months.”

Meanwhile the statistics show a 13% year-on-year increase in September in the average size of bonds approved for those who obtained their home loans through BetterBond, and an average decline of 2,4% in the size of the deposit required (see table below).

Table stats

The average purchase price paid by first-time buyers rose 5,1% year-on-year to R658 516, while the average approved bond size for such buyers rose 6,7%.

However the size of the average deposit required by first-time buyers rose 11,5%, so it was fortunate that the percentage of loans granted for 100% of the purchase price increased year-on-year from 33% to 38%. Most 100% home loans are granted to first-time buyers who fall into the “affordable” or “gap market” category.

Homeloan strategies for different age groups

Of course people of different ages have different housing requirements, but they also face different challenges when trying to obtain a homeloan.

Retired or almost-retired borrowers, for example, may well have low debt, significant assets, and high home equity, but may also be on a fixed income. And if that income is lower than what they used to earn, it can hinder the approval of a homeloan for their retirement home. Some banks may also be reluctant to grant new 20-year mortgages to senior citizens.

According to the latest statistics from BetterBond, South Africa’s biggest mortgage origination group, home buyers over 60 years of age are now typically purchasing properties worth around R1,2 million, and have to pay an average deposit of about R470 000 (39%) to do so. This puts their average bond repayment at R6 700 a month and the income required to secure the bond, at R22 500 a month.

However, if they’re not sure that their earnings will continue at this level, or that their expenses, particularly in regard to health, won’t rise substantially over the next few years, they need to consider other options. One is to lower the monthly repayments by paying an even bigger deposit, but a much better idea would be to set their sights on a lower priced home – preferably low-maintenance and in a good area or retirement village where they would be happy to live long-term.

That way, they can put more of the cash from the sale of their family home into their “retirement fund”, save on maintenance and property rates, and still improve their chances of being granted a loan.

Homeloan strategies for different age groupsBy contrast, first-time homebuyers in their 20s and early 30s may well have plenty of income to support a homeloan application, but a big debt load that hinders them from being approved.

Banks are only interested in “disposable” income – what is left after all debt payments and regular expenses have been deducted – when considering a loan application, so what buyers in this age group need to do is pay off any other debts as fast as possible, until their disposable income will comfortably cover the monthly homeloan repayment.

The BetterBond stats show that home buyers aged between 20 and 30 typically buy properties costing about R715 000, with a deposit of about R67 500 (9,5%), which puts their monthly bond repayment at just over R5 600 a month.

Some banks do have special programmes for first-time buyers that allow them to purchase without paying a deposit (100% bonds), but they should bear in mind that this will increase the monthly bond repayment.

As for homebuyers in their late 30s, 40s, and 50s, their most frequent need will be to buy a bigger home to accommodate a growing family, whether that means more children, aging parents, or both.

These buyers will usually have enough equity in their existing homes to cover the deposit – or most of it – on their new home, but an expanding family generally means higher monthly expenses, so although they probably have plenty of earnings, they also need to minimise other debts, like car repayments and credit card balances, in order to look good to a lender. At the same time, they should not be neglecting their own retirement savings, which means they should resist buying to the maximum of their financial capacity.

According to the BetterBond stats, the average purchase price for homebuyers in their 40s is currently R990 000, on which they are paying a deposit of around R191 000 (19%). This puts their average bond repayment at about R6 950 a month – while those in their 50s are paying around R7 100 a month, on average.

Renting in the city

The ongoing revitalisation of CBDs in South Africa’s big cities is being hastened by the increasing number of people seeking to live in these areas, rather than the suburbs or former townships.

The big attraction is being within walking distance of their jobs or places of study, as well as a variety of food and clothing shops, restaurants and coffee bars, galleries, nightspots, gyms, and service businesses such as laundries, copy shops, and locksmiths.

Proximity to public transport hubs like the Gautrain stations and Bus Rapid Transport stations is also important to an increasing number of young home buyers and tenants, and in this they are following the lead of their US counterparts, according to the latest national housing survey by the Urban Land Institute.

Renting in the city

The survey also showed that 62% of Generation-Y respondents prefer to live in mixed-use developments – buildings that may house shops, restaurants, and offices, as well as their apartments. This is a common occurrence in old city centres around the world, and now also appears to be a growing trend in CBDs of Cape Town, Johannesburg, Durban, and Pretoria.

However, while living above your local supermarket or fast-food outlet can be wonderfully convenient, mixing businesses with residential units can also present conflicts. An ideal situation would probably be to live above offices, banks, or retail businesses that have regular operating hours, security, and minimal noise. However, that’s not always possible, so here are some tips from about what to look out for before you sign a lease:

  • Double-check on the opening and closing times of any businesses below the apartment to prevent any clashes with your sleeping schedule. It’s no fun to be stuck in an apartment above a restaurant or bar with loud music, or a bakery that starts business at 04:00. Additionally, pay attention to businesses in the area that might create lots of parking or foot traffic, which will add to the street noise.
  • Find out about waste disposal. Does the restaurant or supermarket downstairs dispose of waste in an alley at the back of the building? This can present health and sanitation issues, increasing the risk that the building could have vermin. Ideally, mixed-use buildings should have separate trash rooms for residents, accompanied by frequent trash pickup.
  • Take notice of any smells that vent through the building or come through the windows. Not all restaurants have sophisticated ventilation or odour control systems, and while the smell of coffee or baking bread or stir fry is pleasant at first, imagine living with it for a year.
  • Ask about how the maintenance and utilities payments for the building are allocated. Residential tenants should not be subsidising the commercial tenants in any way, and individual water and prepaid electricity meters for each flat are best.
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